Page 5 - NorthAmOil Week 38
P. 5
NorthAmOil COMMENTARY NorthAmOil
Rare good news
The latest blow for Canada’s energy industry comes after it received some rare good news last week in the wake of the attack on oilfield facilities in Saudi Arabia.
The attack caused oil prices to spike before dipping again, and led to energy stocks rising on the Toronto Stock Exchange (TSX). On Sep- tember 16, the index that tracks leading energy company share prices on the TSX closed up 9.25% at 147.91. This was, however, still down by 25% compared with the index’s 52-week high recorded in October 2018.
Energy companies including Baytex Energy, Encana, MEG Energy, Canadian Natural Resources Ltd (CNRL) and Cenovus Energy all posted double-digit increases.
“Our view was that Canadian oil and gas companies were inexpensively priced before. What we’re seeing now is a movement in the oil price, not just at the front end of the curve but also really out through calendar ‘20 and ‘21, which really just means we’re seeing a bit of risk premium creep into the oil price,” BMO Capital Markets’ managing director of oil and gas equity research, Randy Ollenberger, said last week.
Expectations at the time were that oil prices would remain elevated even if Saudi was able to quickly restore production. However, bench- mark Brent and WTI prices are now at similar levels to those seen a week before the attack took place.
On September 23, Reuters reported a source familiar with the matter as saying Saudi had restored over 75% of its crude output, and would be back to full production by next week. The decline in the oil prices over the past days
– and the fact that they did not rise higher in the first place – illustrates the current state of the market, with oversupply continuing to weigh on prices.
The price trend comes after Canada had hoped higher prices and uncertainty in the Middle East would bring Canadian heavy crude back into favour, given the stability of the coun- try’s supply. But while the situation in the Mid- dle East remains highly volatile, it is now looking like Canadian hopes for its oil may have been premature.
What next?
Some of the companies affected by their removal from the S&P/TSX index have sought to down- play the impact of the move.
NexGen’s vice-president of corporate devel- opment, Travis McPherson, said being removed from the index did not affect the company’s busi- ness at all “other than the unfortunate short-term impact to the share price as a result of short-term investors pre-positioning ahead of any action”. Meanwhile, Birchcliff ’s investor relations man- ager, Jesse Doenz, said there would be “abso- lutely zero impact” on the company.
Nonetheless, the removal comes as an addi- tional blow for an industry that has been desper- ately short of good news in recent months and years. Unless crude prices spike again – poten- tially as a result of further turmoil in the Middle East – Canada’s energy industry can only wait until new pipeline projects come online. The start-up of these long-delayed projects will pave the way for Canada to send additional volumes of crude to overseas markets, boosting regional prices and encouraging output growth.
Canada had hoped higher prices and uncertainty in the Middle East would bring Canadian heavy crude back into favour.
Week 38 24•September•2019 w w w . N E W S B A S E . c o m
P5
