AKIPRESS.COM - Oil prices were volatile on Monday as investors weighed the impact of wildfires on Canadian output against a strengthening U.S. dollar and government shake-up in Saudi Arabia, the world’s largest oil export, according to FT.

As investors responded to news that more than 1m barrels of production capacity in Canada was offline Brent, the international oil marker, traded as high as $46.48 a barrel, while West Texas Intermediate touched $46.49.

Those gains faltered as the fires moved away from key oil production facilities, the U.S. currency strengthened and analysts said Saudi Arabia would keep producing at near-record levels under its newly appointed oil minister.

“Changes in Saudi Arabia oil leadership only underscore the shift in strategy to one focused on market share over price and a less oil dependent future,” said Adam Longson analyst at Morgan Stanley.

At the weekend, the world’s biggest oil exporter unceremoniously removed its veteran oil minister, Ali al-Naimi, replacing him with Khalid al-Falih, chairman of Saudi Aramco, the state-controlled oil company. Falih is part of the inner circle of Mohammed bin Salman, the 30-year-old son of King Salman and the man who holds the main levers of power in Saudi Arabia today.

On his first day in office, Falih said he would maintain the kingdom’s oil policy, saying it would meet “existing and additional hydrocarbons demand from our expanding global customer base.”

A sign of that expansion came last week when Saudi Aramco announced a deal to supply Polish refiner PKN Orlen with 50,000 barrels a day of crude between now and the end of the year. Historically the Polish market has been dominated by Russia.

By late afternoon Ice July Brent was down $1.10 at $44.27 a barrel, trading below its U.S. counterpart. Nymex July WTI fell 77 cents to $44.53 a barrel, its premium to Brent explained by the wildfires around Canada’s oil sands capital of Fort McMurray.

The impact of Canada’s falling supplies was evident in local crude prices, as the discount for Western Canada Select, a marker for Albertan heavy oil, narrowed to just $11 a barrel below WTI, the smallest since previous wildfire disruptions in June 2015.

Goldman Sachs said the fires had reduced Canadian oil sands production by 1.0m b/d since Friday, equivalent to a third of the country’s capacity.

However, the bank said there had only been minor damage to oil producing facilities and output could recover quickly once the fires were under control. Weather conditions in Alberta improved over the weekend with cooler temperatures and light rains.

“Assuming that access to facilities is granted by the end of the week and assuming a progressive 10-day ramp-up would leave average lost production at 650,000 b/d during three weeks, the equivalent of nearly 14m barrels,” said Goldman analyst Damien Courvalin.

“While significant, such a disruption would have an only limited impact on overall North American crude inventories, as U.S. stocks of 543m barrels are near record highs and 60m barrels above last year’s level,” he added.

Ballooning U.S. oil stocks weighed on global oil prices last week. Another factor was concern that the big run-up in prices since January will cap the decline in high-cost production needed to rebalance the market.

Data released over the week showed hedge funds and other speculators cut their net long position – the difference between bets on rising and falling prices – in WTI and Brent by 43m barrels, or 6.5 percent, in the week ending May 3.

This was the largest reduction in net longs since mid November and shows how investors are starting to turn more cautious after oil’s 60 percent rally from its January lows.