Canada May Cut Prices of Oil Exported to U.S.

Canada’s National Energy Board, saying it was meeting competition, has proposed cutting the price of oil it exports to the United States by between $1.13 and $1.89 a barrel, effective Feb. 1, a spokesman said Tuesday.

If the reduction is approved by the ministers of finance and energy and then by Canada’s Cabinet, light oil shipped to the United States would be reduced to $25.56 a barrel and heavy oil would be cut to $23.38 a barrel, spokesman Martin McAlister said.

Canada is second only to Mexico as a foreign oil supplier to the United States.

McAlister said Canada ships 210,000 barrels of light oil and 283,000 barrels of heavy oil to the United States each day. The total of 493,000 barrels of oil daily represents about 9.5% of all U.S. imports and 3.1% of daily oil consumption, according to the U.S. Department of Energy.

The proposed cuts would be on top of a $1.02 cut implemented for both grades in January but still waiting formal approval, McAlister said.

In December, Canada had an export price of $27.71 a barrel for light oil and $26.29 for heavy oil, figured at current exchange rates.

A cut of $1 a barrel in the price of oil is equivalent to a reduction of about 2.5 cents in the price of a gallon of refined petroleum products, such as heating oil and gasoline, when entirely passed on to consumers.

Meanwhile, Nigeria’s oil minister, Tam David-West, was quoted Tuesday as saying that the Organization of Petroleum Exporting Countries would have to lower its benchmark price of $29 a barrel for Arabian Light oil, or raise its $26.50-a-barrel benchmark price for heavy crude oil, or do both. OPEC raised the price of heavy oil 50 cents a barrel Jan. 1 to bring the price more in line with the “spot,” or non-contract, market, where heavy Arabian oil is currently selling for about $26.75 a barrel. Nigeria, which produces a lighter grade of oil, may have to support raising prices of heavier oil to win approval of any price cut on the other grades.

Crown Prince Abdullah of Saudi Arabia was quoted as insisting that the official price of Arabian Light crude be maintained.

Although Arabian and Canadian crude oils are not of comparable qualities, the price cut by the Canadians is expected to put further pressure on OPEC to cut it own crude prices.

In New York, Michel Marks, chairman of the New York Mercantile Exchange, said in an interview Tuesday that OPEC’s challenge was no longer defending its official prices but “to prevent any rapid, immediate decline and to try and maintain some price stability.”

On the spot, or non-contract, market, Arabian Light was quoted Tuesday at $27.90 a barrel, or $1.10 below the official price, according to Telerate Energy Service, a market information firm.

Since October, price cutting by non-OPEC members such as Britain, Norway and Canada and by major U.S. oil companies has placed the 13-nation cartel on the defensive. Nigeria broke ranks with OPEC in October to follow cuts by its competitors, Norway and Britain.