A raging wildfire is taking a heavy toll on Canada’s energy industry, cutting the country’s daily production of heavy oil nearly in half.
Daily production is down by about 1 million barrels, with oil sands projects, pipelines and electrical facilities around Fort McMurray shut down and workers sent to safer locales.
Brent crude futures rose 36 cents at $45.37 a barrel on Friday as the inferno at a stretch of forested wilderness with the third-largest reserves of oil in the world continued to burn out of control.
Oil prices have yet to spike dramatically, largely because the outages come at a time of brimming inventories in North America
Three major oil firms warned they will not be able to deliver on some contracts for Canadian crude. British oil firm BP said it had alerted customers to a “force majeure event” at one of its suppliers.
Traders said the moves are likely to deepen concerns about tightening supplies of crude to US refiners. Canada is the largest oil supplier to the world’s biggest energy market.
The bulk of Canada’s oil production comes from northern Alberta where Fort McMurray is located.
“The problem is that you’ve got an entire town evacuated and a lot of the workers have disappeared, so there’s not enough manpower, resulting in rolling shutdowns,” Dirk Lever, managing director of AltaCorp Capital Inc., told the Los Angeles Times.
Canada’s GDP will likely take a hit from the disaster. Economists at the Royal Bank of Canada have warned that a two-week production shutdown could shave half a percentage point from this month’s gross domestic product, the paper said.
The disaster follows months of economic turmoil in the once-booming region, which had been hit hard by project cancellations and mass layoffs in the oil sands owing to the global oil-price collapse.
The forest fires have grown 10 times in size since they broke out and destroyed large parts of Fort McMurray, forcing the evacuation of about 90,000 residents.
“The devastation that occurred there is apocalyptic,” Lever said. The effect of the evacuation, he said, is “really no different than we saw happen 11 years ago in Louisiana with Hurricane Katrina.”