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Canada’s heavy-oil benchmark surged after Alberta announced its crude production cuts – and prices should see “further improvement” in the coming years, according to a research note.

Western Canadian Select catapulted to US$32.91 a barrel on Monday morning, up around US$11 from Friday’s close, as the market immediately priced in the impact of Alberta Premier Rachel Notley’s plan to draw down the province’s crude backlog via production cuts. WCS now stands at around US$29 a barrel, and sells at a US$23.85 discount to the U.S. benchmark, a sharp improvement from a record US$50 differential earlier this fall.

The heady days of US$100 oil aren’t expected any time soon, but Canada’s heavy crude should continue to perk up in 2019 and 2020, according to a report from CIBC Capital Markets.

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“As excess crude capacity is drawn from storage and supply is no longer a price taker, we can expect further improvement in WCS and Canadian crude differentials,” wrote Joan Pinto, associate and energy specialist at CIBC. Her forecast pegs WCS at an average price of US$40.50 a barrel in 2019 and US$41.75 the following year.

Her outlook, however, is contingent on what comes out of this week’s meeting of the Organization of Petroleum Exporting Countries. “Should OPEC-plus reinstate cuts at their confab later in the week,” she wrote, “we could see further upside in global oil benchmarks, including Canadian grades.”

“OPEC-plus” refers to the cartel and non-OPEC producers such as Russia, which had agreed to a previous supply cap and are expected to reinstate supply cuts.

Ms. Pinto added that building key pipelines – such as the Trans Mountain expansion and Keystone XL – would provide more “sustained upside” to narrow the Canada-U.S. price gaps. “For the long haul, pipelines remain the preferred and environmentally safer mode of exporting our energy resources out to Asian and U.S. markets.”

Oil patch producers have struggled to ship product of late, a situation that helped drive Canadian crude to moribund prices, with WCS hitting a record low of less than US$14 a barrel in November. To bolster prices, Ms. Notley on Sunday announced her province would cut production by 8.7 per cent, or roughly 325,000 barrels daily, starting next year to help clear the crude backlog. Once excess storage is drawn down, the production cut will drop to roughly 95,000 barrels daily through the end of 2019. Days earlier, Ms. Notley had unveiled a plan to buy rail cars that would move an additional 120,000 barrels of crude a day out of the province.

The reaction was immediate when markets opened Monday.

Rory Johnston, commodity economist at Bank of Nova Scotia, said the WCS surge seemed “more or less right,” but that “we’re not used to seeing the market price in such a definitive change in supply so quickly.”

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“Premier Notley made this [plan] very, very clear,” Mr. Johnston said by phone Monday. “She gave exact numbers, she gave exact timelines, she gave exact ways of benchmarking progress of the plan. I think that level of detail in the announcement really provided the market with a lot of certainty in order for it to price in that move very, very quickly.”

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