The Covid-19 virus and the ongoing oil price war have created such a large global supply surplus that Western Canada’s oil production will need to be cut from April by some 11%, or 440,000 barrels per day (bpd), Rystad Energy estimates, as the country is days away from running out of available storage capacity.

Western Canada’s storage infrastructure has a generally accepted maximum storage capacity of approximately 40 million barrels. Based on our calculations, more than 30 million barrels of crude oil and diluted bitumen is already held in storage, and the volume is likely to edge towards the high end of capacity by the end of March under current production assumptions.

As a result, Western Canada’s oil production, which Rystad Energy expected to reach some 4 million bpd in its pre-coronavirus estimate, will now probably have to be cut by a total of 440,000 barrels to balance local storage volumes around 35 million barrels. This incorporates at least a 75% reduction in crude-by-rail exports to 100,000 bpd.

In the second quarter last year, Western Canada’s oil production amounted to about 3.94 million bpd.

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“Compounding the situation is the near-certainty of a steep reduction in crude-by-rail exports this year, as well as deferral of spring maintenance at several key oil sands mining projects,” says Thomas Liles, Rystad Energy’s Senior Analyst.