XOM Exxon Mobil Corp

By Vipal Monga 

Exxon Mobil Corp.'s Canadian unit Imperial Oil Ltd. is scaling back the amount of U.S.-bound oil it ships by rail from the province of Alberta to nearly zero this month.

The company shipped an average of roughly 90,000 barrels a day by rail to U.S. refineries in January, Imperial Chief Executive Richard Kruger said during a conference call Friday. A recent surge in the price of western Canadian heavy crude -- fueled by an Alberta-mandated production cut unveiled in December -- means it has become too expensive to ship that oil on trains, Mr. Kruger said.

The move represents about 2% of the 3.54 million daily average barrels Canada exported to the U.S. for the week ending Jan. 25, according to data from the U.S. Energy Information Administration.

According to a transcript of the call, Mr. Kruger said the decision to largely halt the crude-by-rail shipments is "a very tangible example of what we believe is ill-advised, ill-informed negative consequence of this curtailment order."

Moving a barrel from terminals in Alberta to the U.S. Gulf Coast costs Imperial between $15 and $20 by rail, Mr. Kruger said. That price tag exceeds the premium of U.S. crude to Canadian, which was at $9.95 a barrel earlier this week, according to S&P Global Platts. That puts shippers at risk of missing out on profits even after Canadian prices rose.

In October, the discount on western Canadian crude relative to the U.S. benchmark hit a decade high of more than $50 a barrel.

In response to rising inventories in the province, created by limited pipeline capacity, the government of oil-rich Alberta cut local crude production by 8.75%, or the equivalent of 325,000 barrels a day.

Since the output cut was unveiled, the benchmark price for a barrel of western Canadian crude climbed to $46 this week from $22.

Canada is the fourth-largest oil producer in the world, with the bulk of output in Alberta. Alberta's move to cut production was criticized by

large oil producers in the province, such as Imperial and   Suncor Energy Inc., as an unwarranted interference in free markets. 

Imperial's decision is "absolutely a big deal," said Mike Walls, an analyst with data firm Genscape. He added the move will cause the inventory drawdown in Alberta to slow, and put downward pressure on western Canadian crude prices.

Imperial's announcement comes as demand for heavy crude is increasing in the Gulf Coast. The U.S. government's decision to sanction Venezuela's oil producer Petróleos de Venezuela SA, or PdVSA, is expected to deplete the supply of those crude grades.

Alberta Premier Rachel Notley said this week her government would allow slightly more production in February and March, the equivalent of 75,000 a barrels a day, because of the runup in the price of western Canada crude.

Mr. Walls said Imperial's announcement effectively neutralizes Alberta's announcement this week.

Write to Vipal Monga at vipal.monga@wsj.com

(END) Dow Jones Newswires

February 01, 2019 20:50 ET (01:50 GMT)

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