This post [BREAKING] Canada Abandons Free Market Capitalism appeared first on Daily Reckoning.
Desperate times call for desperate measures.
That is the justification for Canada’s most right-wing Province abandoning free market capitalism this week.
On Sunday, the Alberta Government announced that it will be enforcing a mandatory production cut of 8.7 percent for all oil producers operating in the province.
There is an exclusion for the really small operators, many of whom could be bankrupted by such a cut.
For all other producers, however, there is no option. Starting January 1, 2019, the production reduction is mandatory. These private sector companies have no choice.
This is a shocking measure — similar in size to the state of Texas doing the same thing.
But as always, The Daily Edge has the best way for you to play the action…
It Seems Very Wrong, But It Is Probably Right
To appreciate how bad things have gotten, you need to understand that Alberta is Canada’s version of Texas.
I’m talking about big trucks, cowboy hats and very conservative politics.
In Canada, Alberta prides itself on being the home of the free market — the province of privatization.
Alberta is a hotbed for libertarianism and the view that less government equals better government.
So what happened? What has shocked the Alberta Government into this oil patch intervention?
The answer is that the Province was tired of seeing it most valuable commodity (oil) being given away almost for free.
In Alberta, the most common blend of oil produced is called Western Canadian Select (WCS).
This is a heavier blend of oil which means that it is denser and the refining process is more complex than it is for lighter blends.
In the month of October, WCS sold on average for $45.48 per barrel less than West Texas Intermediate (the most common American light oil blend).
That meant that for much of the last two months, Alberta producers have been selling their oil for not much more than $10 per barrel. That means that every company producing it is losing money.
The economic cost of giving away oil production at this price is enormous. Not just for all of the companies that are losing money on production, but for the province of Alberta as well.
It has been estimated that on an annual basis, the recent discount costs the province of Alberta $7.2 billion on production royalties, oil producers $5.3 billion on production sales, and the Canadian federal government $800 million for its royalty take.1
It is a ridiculous amount of money being lost for the sale of a commodity that is going for multiples more elsewhere.
The Government Action Taken And How We Can Profit From It
The cause of this massive problem for conservative Alberta is that the province is landlocked.
Being landlocked means that the province needs to ship its oil through pipelines that run through other provinces and American states.
As you are likely aware, these days getting major pipelines built has been virtually impossible. The political left and environmental groups keep putting up roadblock after roadblock.
With all pipelines out of Alberta already …read more
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