Canadian oil surges as wildfire knocks out more production

* At least four producers cut output

* June WCS trades at $11.50/bbl below WTI

By David Gaffen

NEW YORK, May 5 (Reuters) - Canadian heavy crude physical

prices hit their strongest level since February on Thursday, as

the raging wildfire in northern Alberta shuttered nearly

one-third of the nation's oil sands production and closed key

pipelines.

The wildfire in Fort McMurray, at the core of Alberta's oil

sands region, has forced numerous oil sands operators, including

Suncor Energy Inc (Toronto: SU.TO - news) , Shell Canada and others to reduce production

as workers were moved to safety.

The entire population of 88,000 people in Fort McMurray was

ordered to evacuate as the fire worsened.

The blaze has disrupted some oil operations but is not

directly threatening any facilities in the vast oil sands, which

hold the world's third-largest crude reserves after Saudi Arabia

and Venezuela.

An estimated 640,000 barrels per day is offline, according

to Reuters estimates, with the largest outage coming from Suncor

Energy Inc, which shut a base plant that carries a

capacity of about 350,000 barrels of oil per day. The Canadian

oil sands produce about 2.2 million barrels a day.

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 (Other OTC: UBGXF - news) crude. WCS was last at $12.05 a barrel under

U.S. crude.

Light synthetic crude from the oil sands for June delivery

also rallied hard on Wednesday to $1 a barrel over

the benchmark and on Thursday was bid at $1.10 a barrel over WTI

and offered at $1.85 a barrel above, with no trades reported yet

by Shorcan.

The fire also has caused a notable move in benchmark West

Texas crude, which has rallied by 4 percent to $45.43 a barrel,

fueling expectations that the outages will erode the U.S. supply

glut.

"I wouldn't have expected the price to be moving quite as

much as this but it may be a concern about how this could grow

from where we see it right now," said Jackie Forrest, vice

president in energy research at ARC Financial Corp in Calgary.