Canada is the world’s fourth-largest oil producer and could lose as much as 10 percent of its supply in July after a power outage last week shut the Syncrude facility in Alberta, which can produce up to 360,000 barrels per day.
The outage will tighten Canadian supplies and reduce the crude flow to Cushing, Oklahoma, the delivery point of the U.S.crude futures contract, traders said.
Front-month U.S. crude spread widened while U.S. crude’s discount to Brent narrowed on Monday after Syncrude, a joint venture majority owned by Suncor Energy Inc , said on Friday the facility would be offline at least through July.
Tightening oil supply drove benchmark oil prices in May to their highest since late 2014, prompting the Organization of the Petroleum Exporting Countries and Russia to reach an agreement on Saturday to raise output.
Consuming countries including the United States and China had urged the group to produce more.
The Syncrude outage potentially puts Cushing on a path to an “inventory stockout,” Goldman Sachs said in a research note on Sunday.
“This loss of U.S. supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required.”
U.S. crude for delivery in August traded as much as $1.76 a barrel over futures for delivery in September , the biggest premium since August 2014.
Prompt prices could strengthen further if inventories continue to fall at Cushing, where a sharp decline in supplies last week sparked a rally. Market intelligence firm Genscape on Monday released data that showed inventories fell by about 2.2 million in the week through June 22, traders said. Industry and government inventory data will be released on Tuesday and Wednesday.
News of the prolonged Syncrude outage reduced the difference between U.S. crude and Brent to the smallest since early April, with U.S. crude trading as little as $4.78 a barrel below Brent.
The July/August cash roll also strengthened to trade as high as plus $5.75 on Monday, dealers said. The roll trades in the three days following the expiry of the prompt futures contract and allows traders to replace expiring contracts with the new front-month futures.
Traders have paid more for supplies at Cushing amid concern that tightening supplies could make it difficult for them to fulfill contracted deliveries in July, they said.