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Teamsters Canada union workers picket at the Canadian National Railway at the CN Rail Brampton Intermodal Terminal after both parties failed to resolve contract issues, in Brampton, Ontario, Canada November 19, 2019.

MARK BLINCH/Reuters

As the Canadian National Railway Co. strike entered its second full day Wednesday, market analysts said they expect the labour action to affect oil prices sooner rather than later.

It couldn’t come at a worse time for an industry already facing government-mandated production caps and market access challenges owing to limited pipeline capacity.

Laura Lau, a senior portfolio manager with Brompton Funds, told The Globe and Mail she wouldn’t be surprised if companies have already started shutting in their oil production.

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“We don’t know how long the strike will be. They can put things into storage tanks, but tanks are getting full. At some point, you have to shut down production,” Ms. Lau said.

Between crippling differentials and curtailment, cutting output is a situation with which producers will be all too familiar.

“That’s the good news – that they know what to do. The bad news is they have to pull those plans out again,” Ms. Lau said. “They’ll see a hit to revenues so this is not a happy picture for an oil company. Not at all.”

A strike by 3,200 Canadian National Railway conductors and yard workers has closed Canada’s largest rail freight network triggering fears about the impact on farmers, mining companies and other pillars of the economy. The Globe and Mail (staff)

Oil companies are tight-lipped on their plans to deal with crimped rail capacity, but big producers including Imperial Oil Ltd., Cenovus Energy Inc. and Husky Energy Inc. say they’re monitoring the situation carefully and have plans in place to minimize the effects of the strike.

Robert Fitzmartyn, head of energy research with GMP FirstEnergy, said Wednesday the first reverberations of the strike on oil prices would likely have already been felt but the real crunch time will come when repositories are full, he said, which could lead to forced production shut-ins.

“That could be eight to 20 days. That’s usually the storage buffer,” he said. “The chance [the strike] meaningfully affects domestic prices for oil is probably a pretty solid assumption.”

Saskatchewan Premier Scott Moe said Wednesday getting rail back up and running is crucial to the health of his province’s economy, particularly around agriculture, potash and energy products currently hamstrung by a shortage of pipeline capacity.

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Now that the federal government has its transport and labour ministers in place in the new cabinet, Mr. Moe said he expects the file to move “very quickly.”

The closely watched price differential between the Canadian heavy oil benchmark and West Texas crude widened to US$18.75 a barrel on Wednesday.

Jackie Forrest, senior research director at ARC Energy Research Institute, agreed the true test will come, in terms of stoppered oil transport and growing inventories, only if the strike drags on, and suggests the recent Keystone pipeline outage after an Oct. 29 rupture in North Dakota had a bigger impact on the sector.

That’s because the pipeline carries almost 600,000 barrels of crude each day from Alberta to refineries in the U.S. Midwest and Gulf Coast, compared with the 320,000 barrels a day the Canadian Energy Regulator estimates were hauled via rail by both CN and Canadian Pacific Railway Ltd. in September.

The CN strike by 3,200 train conductors and yard workers closed Canada’s largest rail freight network at midnight Tuesday after several months of unsuccessful mediation.

Workers have cited concerns over long hours, fatigue and dangerous working conditions as the reasons for the labour action.

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The Alberta government urged the federal government on Tuesday to end the strike immediately by enacting back-to-work legislation.

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