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How low will gas go?

Screen Shot 2020-03-24 at 12.28.39 PM“Oil markets are poised to get worse before they get better, ushering in a new era for petroleum,” U.S.-based Citi Bank said in a recent note to its clients. Already, oil is being produced below the cost of production, with prices falling for Western Canadian Select Crude to under (US) $10 (actually hit (US) $7.36) a barrel for the first time.

Simply, the petroleum market got hammered with a one-two blow, where demand has fallen off sharply and supply has increased dramatically. The result is dispenser prices that few of us have seen in recent years.

The COVID-19 concern has Canadians staying at home and working in place. This means less fuel usage for things like commuting and air travel. Less demand drives prices downward. Add to this the recent dust-up between Russia and the Saudis over OPEC production targets, whereby both parties are pumping oil like there is no tomorrow. Russia is selling at a loss as a way to build European market share and the Saudis (and UAE) are battling back with excess production to bring pressure onto Russia in a bid to get them to ratchet back well flows. The upshot is a glut of petroleum products at a time when world demand is at an all-time low.

The Russians have said they have enough reserve capital to keep up this fight well into next year. The Saudis have cash to burn, as well as low production costs, and have said they will keep up pressure till the sides get back to the bargaining table.

Here in Canada Syncrude and Suncor have scaled back maintenance work on upgraders due to COVID-19 and the companies’ inability to obtain workers for the task. The result here is that synthetic crude continues to flow at a time when levels were set to be throttled back. The result is even more capacity in the system.

The outcome is that gasoline prices have fallen and could drop even more. Some analysts predict an additional 10% to 15% decline under canopy as we move into April. A look at prices this week sees Vancouver around the $1.00 mark for a litre of gas. This is a drop from the high of $1.70 we saw last year. British Columbia is around 0.75 cents a litre. Ontario is reporting sales of 0.59 cents and Calgary motorists discovered pumps offering prices of 0.55 cents Tuesday morning. Nova Scotia is selling as low as 0.66 cents.

The bottom line is that Canadians can expect gas prices to decline further over the short term with prices in Ontario possibly coming in around the 0.60 cent mark later next month. Until Russia and OPEC makeup and play nice expect the barrel price to continue to stay low for the foreseeable future.


UK, France Germany blame Iran for Saudi oil attacks

Britain, France and Germany joined the United States on Monday in blaming Iran for attacks on key oil facilities in Saudi Arabia, but the Iranian foreign minister pointed to claims of responsibility by Yemeni rebels and said: “If Iran were behind this attack, nothing would have been left of this refinery.”

Fallout from the Sept. 14 attacks is still reverberating as world leaders gather for their annual meeting at the U.N. General Assembly and international experts investigate, at Saudi Arabia’s request, what happened and who was responsible.

The leaders of the United Kingdom, France and Germany released a statement reaffirming their support for the 2015 Iran nuclear deal, which the U.S. exited, but telling Iran to stop breaching it and saying “there is no other plausible explanation” than that “Iran bears responsibility for this attack.”

They pledged to try to ease tensions in the Middle East and urged Iran to “refrain from choosing provocation and escalation.”

British Prime Minister Boris Johnson said late Sunday while flying to New York that the U.K. would consider taking part in a U.S.-led military effort to bolster Saudi Arabia’s defences after the drone and cruise missile attacks on the world’s largest oil processor and an oil field.

Iran’s foreign minister, Mohammad Javad Zarif, denied any part in the attacks. He said Monday that Yemen’s Houthi rebels, who claimed responsibility, “have every reason to retaliate” for the Saudi-led coalition’s aerial attacks on their country.

He also stressed that on the eve of President Hassan Rouhani’s visit to the United Nations in New York City “it would be stupid for Iran to engage in such activity.”

Zarif called it an attack “with high precision, low impact” and no casualties. In the refinery, there were facilities that would have taken the Saudis a year to repair, he said. “Why did they hit the lowest impact places?” Zarif asked, saying if Iran was responsible, the refinery would have been destroyed.

France has been trying to find a diplomatic solution to U.S.-Iranian tensions, which soared after the Saudi attacks, and has carefully avoided assigning blame.

Earlier on his way to New York, French President Emmanuel Macron said he remained “cautious” about attributing responsibility for the attacks. There was no immediate explanation of why he later shifted positions and blamed Iran.

Macron said at a U.N. news conference not long before the statement was issued that he planned to meet separately with both Trump and Rouhani over the next day and would work to foster “the conditions for discussion” and not escalation.

Macron called the Sept. 14 strikes “a game-changer, clearly” but reiterated France’s willingness to mediate.

Zarif, however, ruled out any Iran-U.S. meeting. He said Iran had received no request from the U.S., “and we have made clear that a request alone will not do the job.”

He said Trump “closed the door to negotiations” with the latest U.S. sanctions, which labeled the country’s central bank a “global terrorist” institution – a designation the Iranian minister said the U.S. president and his successors may not be able to change.

“I know that President Trump did not want to do that. I know he must have been misinformed,” Zarif said in a meeting with U.N. correspondents.

Zarif said he plans to meet Sept. 25 with ministers of all five countries remaining in the 2015 nuclear deal from which Trump withdrew, including Russia and China.

Johnson, the U.K. prime minister, said Britain still backs the existing nuclear agreement and wants Iran to stick to its terms but urged Trump to strike a new deal with Iran.

“Whatever your objections with the old nuclear deal with Iran, it’s time now to move forward and do a new deal,” he said.

Asked about Johnson’s suggestion, Trump said he respects the British leader and believes the current agreement expires too soon.

The joint U.K., France, Germany statement urges Iran to reverse its rollback on key provisions in the 2015 nuclear deal and calls for a new agreement.

“The time has come for Iran to accept negotiation on a long-term framework for its nuclear program as well as on issues related to regional security, including its missiles program and other means of delivery,” the three countries said.

Shortly before leaving for the U.N. meetings Monday, Iran’s Rouhani said on state television that his country will invite Persian Gulf nations to join an Iranian-led coalition “to guarantee the region’s security.”

Rouhani said the plan also encompasses economic co-operation and an initiative for “long term” peace. He planned on presenting details while at the United Nations.

Zarif said the new Hormuz Peace Initiative – with the acronym HOPE – would be formed under a U.N. umbrella with two underlying principles: nonaggression and noninterference. He said it would require a major shift from countries “buying” security from other nations or mercenaries and instead promote the notion that “you can gain security relying on your own people and working with your neighbours.”

Johnson said he would meet Rouhani at this week’s U.N. gathering. He said he wanted Britain to be “a bridge between our European friends and the Americans when it comes to the crisis in the Gulf.”

Johnson stressed the need for a diplomatic response to the Gulf tensions but said Britain would consider any request for military help.

The Trump administration announced Friday that it would send additional U.S. troops and missile defence equipment to Saudi Arabia and the United Arab Emirates as part of a “defensive” deployment. Officials said the number of troops was likely to be in the hundreds.

“We will be following that very closely,” Johnson said. “And clearly if we are asked, either by the Saudis or by the Americans, to have a role, then we will consider in what way we could be useful.”

A U.K. official told The Associated Press that a claim of responsibility for the attacks by Iran-allied Houthi rebels in Yemen was “implausible.” He said remnants of Iran-made cruise missiles were found at the attack site, and “the sophistication points very, very firmly to Iranian involvement.”

The official, who spoke on the condition of anonymity to discuss intelligence findings, did not say whether Britain believed the attack was launched from Iranian soil. Iran denies responsibility and has warned any retaliatory attack targeting it will result in an “all-out war.”

Meanwhile Monday, Iranian government spokesman Ali Rabiei suggested the release of a British-flagged oil tanker held by Tehran since July would be imminent, though he doesn’t know when it will leave.

The Stena Impero has not turned on its satellite-tracking beacon in 58 days and there has not been any sign that it has left its position near Iranian port city of Bandar Abbas.

Iran’s Revolutionary Guard seized the vessel after authorities in Gibraltar seized an Iranian crude oil tanker. That ship has since left Gibraltar, leading to hopes the Stena Impero would be released.


Filling Gas Tank_Sm_070218

Canadian energy sector feels the fallout of attack on Saudi Arabia

Higher oil prices spurred by an attack on Saudi Arabian oil facilities boosted the Canadian energy sector on Monday but are expected to result in higher fuel prices for consumers.

The index that tracks leading energy company share prices on the Toronto Stock Exchange closed up 9.25% at 147.9 (but still down by 25% compared with its 52-week high set last October) as U.S. benchmark oil prices finished the day ahead by more than 12%.

Double-digit increases were posted by energy firms including Baytex Energy Corp. (up 16.5%), Encana Corp. (up 16.3%), MEG Energy Corp. (up 13.8%), Canadian Natural Resources Ltd. (up 12.8%) and Cenovus Energy Inc. (12.0%).

“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,” said Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets.

Stronger global oil prices are expected to continue to be supported even if the Saudis are able to restore production quickly, translating into more cash flow for energy companies to invest going forward, he said.

Higher oil prices could raise average gasoline prices in Canada by between five and 12 cents per litre over the next two weeks, depending on how long Saudi Arabia production is affected, said Patrick DeHaan, head of petroleum analysis for GasBuddy.

Last week, eight energy companies were dropped from the main Toronto Stock Exchange index because their market valuation had fallen below the minimum level for inclusion.

The cuts included Canada’s two largest drilling companies – Ensign Energy Services Inc. and Precision Drilling Corp. – as lower producer spending has translated into fewer wells being drilled.

Analysts blame the lack of investor interest in Canadian energy companies on the uncertain future of pipeline access to markets, a factor cited by the Alberta government to continue to constrain crude production this year.

“Part of the irony is we could be producing a million barrels a day more by now had we had some of these pipelines, and that certainly would have helped deal with some of the lost volumes here with the outage,” said Ollenberger.

The Saudi outage serves as a reminder to oil customers around the world of the political uncertainties in Middle Eastern countries, said Bob Schulz, a business professor with the Haskayne School of Business at the University of Calgary.

The situation will enhance the reputation of Canadian oil, he said, and may spur Canada’s main customer, the United States, to redouble efforts to ensure stalled cross-border pipelines like Keystone XL are approved and completed.

In Washington, U.S. President Donald Trump said he had approved the release of U.S. strategic petroleum reserves “if needed” to stabilize energy markets. He later said expanding domestic energy output meant the U.S. doesn’t need Middle East oil.

It remained unknown on Monday how long it will take Saudi Arabia to bring production back.

“A worst case scenario—with profound implications for the global economy—is a broader regional conflict that puts Gulf oil production, processing and transport in the crosshairs,” said Bill Farren-Price, director of RS Energy Group, in an emailed statement.

Short-term affects in Canada will likely be muted, said CEO Allan Fogwill of the Canadian Energy Research Institute, noting that other OPEC countries have surplus capacity they can bring on and oil will be brought out of storage.

More pipeline or rail access to markets is needed to allow growth in the Canadian energy sector, said Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy.

“Higher prices are a good thing but most of what companies have been doing with their cash flow these days is paying down debt or buying back equity,” he said.

“It should strengthen balance sheets and is probably good in terms of tax and royalty (revenue) but I don’t think it has a meaningful change to investment levels or jobs.”


Energy prices spike after Saudi oil attack

Global energy prices spiked Monday by a percentage unseen since the 1991 Gulf War after a weekend attack on key oil facilities in Saudi Arabia caused the worst disruption to world supplies on record, further fuelling heightened tensions between Iran and the U.S.

American officials released satellite images of the damage at the heart of the kingdom’s crucial Abqaiq oil processing plant and a key oil field, alleging the pattern of destruction suggested Saturday’s attack came from either Iraq or Iran – rather than Yemen, as claimed by Iranian-backed Houthi rebels there. A Saudi military spokesman later made the same accusation, alleging “Iranian weapons” had been used in the assault.

Iran rejected the allegations, with a government spokesman saying now there was “absolutely no chance” of a hoped-for meeting between Iranian President Hassan Rouhani and President Donald Trump at the U.N. General Assembly next week.

For his part, Trump sent mixed signals, saying his “locked and loaded” government waited for Saudi confirmation of Iran being behind the attack while later tweeting that the U.S. didn’t need Mideast oil, “but will help our Allies!”

The tensions have led to fears that action on any side could rapidly escalate a confrontation that’s been raging just below the surface in the wider Persian Gulf in recent months. There already have been mysterious attacks on oil tankers that Washington blames on Tehran, at least one suspected Israeli strike on Shiite forces in Iraq, and the downing of a U.S. military surveillance drone by Iran.

Those tensions have increased ever since Trump pulled the U.S. out of Iran’s 2015 agreement with world powers that curtailed its nuclear activities and the U.S. re-imposed sanctions on the country that sent its economy into freefall.

Benchmark Brent crude gained nearly 20% in the first moments of trading Monday before settling down to over 10% higher as trading continued. A barrel of Brent traded up $6.45 to $66.67.

That spike represented the biggest percentage value jump in Brent crude since the run-up to the 1991 Gulf War that saw a U.S.-led coalition expel Iraqi dictator Saddam Hussein’s forces from Kuwait.

U.S. benchmark West Texas crude was up around 10%. U.S. gasoline and heating oil similarly were up.

The attack halted production of 5.7 million barrels of crude a day, more than half of Saudi Arabia’s global daily exports and more than 5% of the world’s daily crude oil production. Most of that output goes to Asia.

At 5.7 million barrels of crude oil a day, the Saudi disruption would be the greatest on record for world markets, according to figures from the Paris-based International Energy Agency. It just edges out the 5.6 million-barrels-a-day disruption around the time of Iran’s 1979 Islamic Revolution, according to the IEA.

Though the world’s overall energy demands in the past were smaller, the Saudi outage has sparked concern among analysts of prices pushing to $80 a barrel and beyond. Publicly traded airlines, whose major costs include jet fuel, suffered globally. That could in turn push up prices on everything from travel to a gallon of gas at the pump.

Saudi Arabia has pledged that its stockpiles would keep global markets supplied as it rushes to repair damage at the Abqaiq facility and its Khurais oil field. However, Saudi Aramco has not responded publicly to questions about its facilities.

Yemen’s Houthi rebels, who have been targeted by a Saudi-led coalition since March 2015 in a vicious war in the Arab world’s poorest country, maintain they launched 10 drones that caused the extensive damage. They reiterated that Saudi oil sites remained in their crosshairs, warning foreign workers to stay away.

U.S. officials say that the damage done to the north-facing parts of the facilities suggest the attack instead came across the Persian Gulf from Iraq or Iran. American officials have yet to offer substantial evidence to support their claims, though Iran in the past has relied on hard-to-attribute attacks or proxy forces to launch assaults against its enemies.

At a news conference Monday, Saudi military spokesman Col. Turki al-Maliki said the kingdom’s initial investigations showed “the terrorist attack did not come from Yemen as claimed by the Houthi militia.”

“This terrorist attack is a large-scale cowardly act, and as I said, targets the global economy and not just the kingdom,” al-Malki said. “All the indications and operational evidence, and the weapons that were used in the terrorist attack, whether in Buqayq or Khurais, indicate with initial evidence that these weapons are Iranian weapons.”

Al-Maliki offered no immediate evidence to support his allegations, which came after Trump said the U.S. awaited word from Saudi Arabia about who it suspected launched the attacks.

Iraqi Premier Adel Abdel-Mahdi said he received a call Monday from U.S. Secretary of State Mike Pompeo, who confirmed that the attack didn’t come from Iraq. The State Department did not immediately acknowledge what was discussed. Iraq is home to Iranian-backed Shiite militias who aided it in its fight against the Islamic State group.

Iranian Foreign Ministry spokesman Abbas Mousavi again denied the U.S. claims Monday, telling journalists the accusation was “condemned, unacceptable and categorically baseless.” Government spokesman Ali Rabiei meanwhile said a Trump-Rouhani meeting in New York as of now wouldn’t happen.

“Currently we don’t see any sign from the Americans which has honesty in it, and if the current state continues there will be absolutely no chance of a meeting between the two presidents,” Rabiei said.

Russia’s Foreign Ministry, while expressing “grave concern” about the attack, warned against putting the blame on Iran, saying that plans of military retaliation against Iran are unacceptable.

U.S. satellite photos released overnight Monday appeared to show the attack on Abqaiq, the world’s largest oil processing facility, may have struck the most sensitive part of the facility, its stabilization area. The Washington-based Center for Strategic and International Studies has said the area includes “storage tanks and processing and compressor trains – which greatly increases the likelihood of a strike successfully disrupting or destroying its operations.”

Stabilization means processing so-called sour crude oil into sweet crude. That allows it to be transported onto transshipment points on the Persian Gulf and the Red Sea, or to refineries for local production.

Fernando Ferreira, the director of geopolitical risk at the Washington-based Rapidan Energy Group, said rebuilding that infrastructure “will take many months.”

Saudi Aramco did not respond to questions from The Associated Press regarding damage at Abqaiq and the satellite images.

Meanwhile, the attacks are expected to affect gas prices here in Canada, with consumers bracing for a slight jump at the pumps.