Canadian oil outages, bad weather to tighten inventories at key US storage hub

Supply disruptions in Western Canada, stemming from adverse weather and a significant power outage, are exacerbating an already tight global oil market. Heavy rains in northern Alberta have slowed oil sands mining, while a power failure at Cenovus Energy's Foster Creek and Christina Lake operations led the company to declare force majeure. This outage temporarily halted about 10% of the company's oil sands production.

The reduced Canadian output could tighten supplies destined for the crucial Cushing storage hub in Oklahoma and U.S. Midwest refineries. These refineries are particularly dependent on Canadian oil, as they lack access to waterborne crude and many are designed to process oil sands crude. Western Canadian crude inventories have fallen significantly, reaching their lowest level since 2020.

These domestic supply issues compound the global market's fragility. A substantial portion of global oil and gas shipments are currently rerouted due to the war in Iran, impacting passage through the Strait of Hormuz. U.S. crude inventories have dropped by 79 million barrels since the conflict began in late February, pushing inventories at Cushing close to operational limits. Canadian crude has seen increased demand, especially from Asian buyers seeking secure supply sources, further straining availability.

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As of last week, Western Canadian crude ⁠inventories had decreased by more than 4 ‌million barrels over the past two weeks and by nearly 8 million barrels since the end of February.