Canada’s oil-rich province of Alberta is under siege from a massive wildfire. And that’s creating turmoil in the global oil markets.
The huge forest fire has already torched at least 1,600 homes and forced the evacuation of about 88,000 people in the region, including everyone from the oil sands town of Fort McMurray.
The disaster has also caused Royal Dutch Shell to shut down its Albian Sands facility and other producers have had to reduce the amount of oil they are pumping as well.
“This fire is raging near where a lot of the oil activity takes place. This is a very real event and it’s taking supply off the market,” said Anthony Starkey, energy analysis manager at Bentek Energy.
The fire threatens up to 1 million barrels of daily oil production capability, according to Bentek Energy, which noted that some of that output was already offline for seasonal reasons.
The supply outages from Canada — one of the world’s biggest oil producers and a major source of U.S. imports — sent oil prices soaring as much as 5% to $46.63 a barrel Thursday morning. More recently oil prices have eased back to about $45.40 a barrel.
A number of major oil companies that operate in Canada have been impacted by the forest fire, including Shell and Suncor Energy, Canada’s largest oil producer. Even though Shell’s Albian Sands operation is far from the fires, the company said it shut down production to focus on “getting families out of the region.” Shell also opened its work camp, the Albian Village, to Fort McMurray residents who were evacuated.
The fire has global ripple effects because it could force the U.S. to import more oil from elsewhere like Saudi Arabia.
After bottoming at $26 a barrel in mid-February, oil prices have raced back to nearly $50 a barrel. The rally has been fueled by hopes of dramatic cuts to production in the U.S.
However, the focus on Canada has shifted attention away from the latest evidence that a huge glut of oil continues to exist. U.S. oil inventories soared by nearly 3 million barrels last week, according to a U.S. Energy Information Administration published on Wednesday.
Starkey said that while domestic stockpiles of oil are not quite as high as last year, they are still “extreme” on a historical basis.
“Things are improving, but it’s still relative. We are still quite oversupplied,” said Starkey.
–CNN’s Faith Karimi and Chuck Johnston contributed to this report.