Rejected by Russia last week, Saudi Arabia unleashed an all-out war against rival producers with plans to increase crude oil production significantly above 10 million barrels a day in April at some point. destruction of the request.
Riyadh and its OPEC counterparts were trying to convince Moscow last week to agree on coordinated oil cuts worth 1.5 million bpd. But the Russians, eager to press American shale producers in retaliation for American sanctions against the country, would not budge.
“Expect more bloodshed in oil and stocks as Saudi Arabia announced on Saturday that it would increase production, thereby triggering a total price war,” wrote Canaccord Genuity analysts.
This sparked one of the worst oil price collapses in history in the midst of a global coronavirus crisis that sapped business and consumer sentiment. Crude oil fell more than 24% to US $ 33.20 a barrel this morning, while the benchmark for Western Canada Select was slightly below US $ 28. Goldmans Sachs says oil may soon reach US $ 20, especially as demand for oil has been severely affected by the health crisis.
A sustained decline could be catastrophic for Canadian oil.
“Western Canada could see a lot more layoffs, especially since we are entering the spring break with employees who are not told to come back at the end of the winter programs,” tweeted Martin Pelletier, a Calgary-based FP investor and columnist.
According to eight analysts at Capital, the list of Canadian companies “will be purged of weak asset balance sheets / bases”. Investors will focus on who has / does not have the flexibility of their investment budget and short-term debt repayments. If oil prices continue to fall, most have the opportunity to cut investment, but Husky Energy Inc. and Ovintiv Inc. “are most at risk,” analysts at Eight Capital wrote this morning. In the United States, Ovintiv has lost 15% of its future transactions.
Other energy producers are also preparing for a dramatic decline. Suncor Energy Inc. fell 15%, Canadian Natural Resources Inc. plunged 20% and Cenovus Energy Inc. lost nearly 24% in futures trading in the United States before markets opened in Toronto.
Production will likely become a battle over who has the deepest pockets, wrote Jeffrey Halley, senior Asia-Pacific market strategist at Oanda.
“WE. Canadian shale and oil sands are in a nightmarish year, I fear,” wrote Halley Sunday evening, according to a Market Watch report.
Canaccord Genuity says junior and intermediate Canadian producers “could be among the hardest hit” if oil prices drop significantly as investors take refuge in big-name big names or leave space altogether. “If low prices prevail, we anticipate significant budget cuts, with dividend cuts also likely.”
“While we believe that Saudi Arabia’s” scorched earth “strategy may be an attempt to bring Russia back to the negotiating table as quickly as possible, the duration of this price war (and its impact on oil prices) is difficult to predict. “
Here’s what you need to know this morning:
- Former Ambassadors to China Howard Balloch, Guy Saint-Jacques and John McCallum Testify before Special Committee on Canada-China Relations in Ottawa
- Canada Mortgage and Housing Corporation to release preliminary housing starts for February
- Ontario’s Chief Medical Officer of Health Dr. David Williams Updates the Province’s Response to COVID-19 in Toronto
- Calgary Chamber of Commerce hosts conversation with CPP Investment Board CEO Mark Machin
- Business earnings: Ensign Energy Services Inc.
The good “Federal Budget” ship seems to be hitting the rocks. Expect a broken promise as the federal debt-to-GDP ratio increases with moribund growth in the first half of 2020, writes Jack Mintz.
“What could also happen is something that we haven’t seen in a while: federal program spending exceeds revenue. This is called the primary (or operational) deficit when a government can not only cover interest payments on the debt (totaling $ 23.9 billion in 2018/9), but also its spending program, “wrote Mintz. Read the full review here.
– Please send your news, comments and stories to [email protected] – Yadullah Hussain @Yad_Fpenergy
With files from The Canadian Press, Thomson Reuters and Bloomberg