Alberta Premier Notley's announcement will force oil producers to lower production by 325,000 barrels a day, which is greater than the total production output of OPEC's three smallest members combined, BNN Bloomberg reported.
Western Canadian Select for January traded as much as $19.75 (U.S.) a barrel below USA crude futures early Monday, a $9.25 leap from Friday, before slipping back to a $23 discount.
The Financial Post reports Western Canadian Select ended trade at US$29.95 a barrel, after on Friday it closed at US$21.93 a barrel.
Notley said that she expects the cuts to remain in place until the 35 million barrels of oil now sitting in storage because of what she describes as "unsustainable" transportation bottlenecks are shipped to market. The change may dampen the long-term impact of a mandatory production curtailment in Alberta Sunday, and lessen the benefit of plans to ease the region's transport bottleneck.
That figure is expected to shrink as the glut of oil in storage is reduced.
The Canadian Dollar rose broadly Monday as oil prices recovered from 2018 lows but developments in the domestic market have just dented the growth outlook and could have negative consequences for the currency over the coming months.
The mandated cut ends on December 31, 2019.
The companies hope that reducing production will boost regional oil prices as well as their profitability. Alberta crude had been trading at a discount compared to West Texas Intermediate, the North American benchmark, for months, due to a surplus of inventory.
To be sure, the Canadian government has had its hand in the energy industry before. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is.
He said Notley's decision was courageous given the lack of consensus among industry players over whether the province should intervene.
While the government isn't helping with the rail vehicle purchase and had no new funds for oil and gas in its fall fiscal update, Natural Resources Minister Amarjeet Sohi did reveal on Friday that he had asked the National Energy Board to evaluate whether Canada's pipelines are being used to their full capacity.
More broadly, the slide in USA oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown.
Calgary's major integrated companies - those that both produce and refine oil - including Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc., said in statements they remain opposed to the cuts. He said even if they reduce capital expenses, they still have lots of projects for people to work on.
The premier announced the cut on Sunday. Sohi had last week asked the National Energy Board about ways to make Canada's pipeline system more efficient.
The losers include integrated producers who will likely pay more for their refining feedstock and companies that had meant to grow their production in the first half of 2019, it said. After that, the production restriction will drop to an average of 95,000 BPD until the end of 2019 when the new rule expires.