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With several multinational energy companies recently announcing their exodus from the Canadian oilsands, interests between Canada's energy patch and federal and provincial governments have now been aligned. Recent deals include Canada's largest oil and gas company Suncor (SU-T) acquiring a control position in competitor Syncrude Canada. Other major deals include the purchase of Royal Dutch Shell's oilsands assets by Canadian Natural Resources (CNQ-T), and the purchase of ConocoPhillips’ oilsands assets by Cenovus Energy (CVE-T). Notably, Canadian energy companies are now in charge of roughly 70% of oilsands production, and some have become so large they are giants of the Canadian economy. Higher Canadian ownership should lead to more efficient supply chains, better connectivity, and more motivation to work co-operatively to make the business more efficient.
Going forward, now that the Canadian oilsands is increasingly owned by Canadian companies, Canada's oil patch can now work more effectively with provincial and federal governments to try and get the proper access with the right environmental standards to market. This collaboration will effectively create a Canadian brand, but will require that the various levels of government look out for Canadian interests and enable Canadian oilsands producers to become more competitive globally (particularly when access to capital has become more difficult, as other jurisdiction such as the U.S. are more supportive around either regulation or taxation). Looking forward, the international exodus from the Canadian oil sands will likely continue, as companies like BP PLC, Chevron Corp. and Total SA evaluate their positions. As such, Canadian energy producers and government will have a chance to further align their interests and strengthen the competitiveness of this world class asset.
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As Brent crude futures look to break above $55 a barrel this week, it appears that OPEC's production cuts are slowly chipping away at the global crude oil overhang. In Q1/17, data suggests that global crude stocks built by much less than they did in the first quarter of last year even though refinery maintenance globally was much heavier. Notably, Iran has sold all of the oil it had stored for years at sea and Tehran is now struggling to keep exports growing as it grapples with production constraints. Further, trading giant Vitol recently sold millions of barrels of Nigerian crude oil from storage in South Africa's Saldanha Bay with cargoes sailing for Taiwan, India, the US and Europe. Interestingly, Nigeria's new loading programs are now finding buyers at a reasonable rate – in stark contrast to the past two years, when any sales from storage put immense downward pressure on prices for newly loaded cargoes. Finally, Nordic bank SEB recently noted that global oil inventories in weekly data have dropped by 42 million barrels in the last four weeks.
Contrasting this data has been stubbornly high US crude oil inventories, which has created some confusion in the oil markets. It is important to note that rising US crude inventories are mainly a function of reduced U.S. refining activity on the one hand and U.S. crude oil imports on the other. Overall, it is going to take some time for all of the pieces of the global oil inventory picture to become clearer. That said, should OPEC decide to extend its production cuts in May, US oil inventories will likely start to draw down, as has been the case in other global oil markets including Iran and Nigeria. |
Jason SawatzkyA Canadian Energy expert Archives
October 2020
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