Wildfires in Canada have halted oil production, causing oil to drop for the fourth day in a row, making this the longest stretch of declining oil in over a month. Around 1 million barrels a day were halted due to the continuous wildfires over the course of May. The 5,000 square kilometer forest wildfire, nicknamed “the beast” has taken many shifts in directions, which has caused these fires to be more difficult to contain. However, municipal authorities in Alberta stated on May 20th that conditions were improving and mandatory evacuations orders for seven oil-sands worker camps have been lifted, and operations are underway again.
In addition to Canada resuming production in Alberta, Iran has made a statement that they are planning to export 2.2 million barrels of oil a day this summer. Iran has no future plans to reduce or freeze output because it is still ramping up to meet their pre-sanctions quota. According to Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut, these two factors are causing a damper on the market.
The oil flow shut down in the beginning of May 2016 has majorly affected the United States, who imports two thirds of Canada’s crude oil. Canada accounts for over 40% of U.S. crude imports, and has the third-largest oil reserve in the world. However, due to the fires slowing production by 1 million barrels per day, almost a third of the 3.5 million barrels that the U.S. imports daily, prices in the U.S. are expected to rise. John Auers, executive vice president with oil industry consulting firm Turner, Mason & Company, believes that refineries in the U.S. Midwest will take the hit the most, because they do not have any alternative options. In addition to the rising oil prices due to these raging fires, the summer months are anticipating the extension of the wildfires, and which will also impact U.S. drivers at the pumps.
Roughly 16% of Canada’s crude oil production had stopped due to the up roar of the wildfires. Behind Venezuela and Saudi Arabia, Canada’s third largest oil reserve is a major asset to the world’s production of oil. Although much of the Canadian oil was destined for the United States, the rest of the world also has felt some of the negative effects of this production halt in increasing oil prices.