Canadian oil surges as wildfire knocks out more production

* At least four producers cut output

* June WCS trades at $11.50/bbl below WTI

(Updates throughout, changes prices, adds details of activity

in Canada, quotes, adds byline)

By David Gaffen

NEW YORK, May 5 (Reuters) - Canadian crude prices hit their

highest levels in nearly a year on Thursday, as a raging

wildfire in northern Alberta shuttered nearly one-third of the

nation's oil sands production and closed key pipelines, raising

concerns about temporary shortages.

At least 680,000 barrels per day of crude output is offline,

according to Reuters calculations, out of Canada's total oil

sands production of 2.2 million barrels a day, though some

operators, including Syncrude, have not disclosed how much

production has been shut.

The light synthetic crude grade from the oil sands for May

delivery doubled to a premium of $7.10 a barrel over

West Texas crude in thin volume on Thursday, according to

Shorcan, up from the previous settlement at $3.50 a barrel.

That was the largest premium to the U.S (Other OTC: UBGXF - news) . benchmark since

June of last year, a sign of concern about a short-term supply

crunch even as the U.S. market remains awash with material.

So far, the wildfire has forced eight oil sands operators,

including Suncor Energy Inc (Toronto: SU.TO - news) , Shell Canada and

others to reduce production and evacuate operations near the

city of Fort McMurray on Thursday as the massive blaze spread

south. Officials said they expected the fire to grow later in

the day.

The wildfire also stymied transportation of crude and

feedstocks normally delivered via trains, pipelines and roads

across the vast oil sands, which hold the world's third-largest

crude reserves after Saudi Arabia and Venezuela.

"These are pretty sizable numbers," said Mike Tran, energy

strategist at RBC Capital Markets. "How quick it returns is

based on how quickly they can get staffing back, given the

entire space has been evacuated."

The big cuts by some of the world's major producers boosted

prices, even as concerns about immediate supplies to refineries

across the border from Texas to Ohio that use its heavy crude

were limited due to record high inventories.

Western Canada Select heavy blend crude for June delivery

at one point traded at $11.50 a barrel under the

West Texas Intermediate benchmark, according to Shorcan Energy

brokers.

That was the narrowest discount since late February, and

significantly tighter than Wednesday's settlement of $12.70 a

barrel under U.S crude. WCS was last at $11.80 a barrel under

U.S. crude.

Earlier this week, the entire population of 88,000 people in

Fort McMurray was ordered to evacuate as the fire grew,

incinerating dozens of homes.

The forecast has called for cooler temperatures and a

possibility of rain, offering hope that controlling the blaze

could become easier.

More than 20 oil operations are clustered in a 100-kilometer

(60-mile) radius of the city, according to government data,

located within the Athabasca oil sands in Alberta.

"For U.S. balances, it potentially speeds up the rebalancing

process as it means refiners may need to draw down inventory" at

either the U.S. storage hub of Cushing, Oklahoma, or Patoka,

Illinois, said Dominic Haywood, an energy analyst at Energy

Aspects in London.

LIMITED FOR NOW

According to Genscape, which monitors key terminals in

Western Canada, including the critical locations at Edmonton and

Hardisty, total inventories were 26.5 million barrels at the end

of April.

That is equivalent to five weeks of the production currently

offline.

But some traders were concerned that the shutdown of several

Inter Pipeline (Toronto: IPL.TO - news) systems would affect supplies of other

feedstock and hurt output at operations far away from the fire.

Statoil ASA (LSE: 0M2Z.L - news) said Thursday that it had cut its

production at its Leismer oil sands project, about 120 km south

of Fort McMurray, by 50 percent due to diluent shortages as a

result of the pipeline shutdown.

Diluent, a thinning agent, is blended with bitumen, the

thick petroleum sourced in the oil sands necessary to produce

the Western Canadian benchmark

Several U.S. refiners contacted by Reuters that use Canadian

crude said so far they did not see an impact in terms of

deliveries. The U.S. imports about 3.5 million barrels of

Canadian crude per day.

The fire also caused a notable move in benchmark West Texas

crude, which rallied by as much 4 percent, fueling expectations

that the outages will erode the U.S. supply glut. Crude settled

at $44.32 a barrel, up 1.2 percent.

(Additional reporting by Catherine Ngai in New York, Erwin Seba

in Houston and Nia Williams in Calgary; Editing by Bernard Orr)