CALGARY – As OPEC members and Russia reach an agreement to cut 10 million barrels of daily oil production on Thursday, RBC Capital Markets analysts expect Canadian oil producers to be forced to cut about a third of total national oil production – 1.7 million b / d.
OPEC members and Russia have also pushed other countries to cut production, and a historic meeting of G20 energy ministers is scheduled for Friday, which is expected to include Canada’s Minister of Natural Resources Seamus O ‘Regan.
The minister was in a meeting Thursday with his counterparts from the United States and Mexico in preparation for the meeting, according to a press release.
O’Regan also met with Alberta Minister of Energy Sonya Savage, Saskatchewan Minister of Energy and Resources Bronwyn Eyre and Earth Minister of Natural Resources on Thursday. Newfoundland and Labrador, Siobhan Coady, on adopting a “united approach” before Friday’s G20 meeting.
“Canada is preparing for an unprecedented meeting of G20 energy ministers this Friday, and a united approach puts us in the best position to support our workers and our economy,” O’Regan said in an email, noting. that the collapse in the price of oil had had a “devastating impact on the Canadian oil industry and its workers”.
Canadian crude is considered “some of the cheapest barrels on the planet
RBC Michael Tran
Alberta’s energy minister also took part in Thursday’s negotiations between OPEC and other oil-producing countries over the reduction of inflated global stocks.
“We have not been asked to restrict energy production in Alberta,” Premier Jason Kenney told reporters. “The main concern of OPEC + is that North American producers do not increase their production to occupy the space created by their own limitation, if they do so.”
World oil prices initially traded when news of OPEC + production fell, but quickly fell. Futures in the United States fell 9.3% to US $ 22.76 per barrel, while Brent crude closed 4.1%, down to US $ 31.48 per barrel.
The situation in Canada was much worse when Western Canadian Select’s benchmark heavy oil prices plunged 50% to US $ 3.59 per barrel, partly due to lack of storage space and growing demand for fuel across North America while commuters stay at home to prevent the spread of the coronavirus.
Michael Tran, Managing Director of RBC Capital Markets, Global Energy Strategy, said Thursday that Canadian crude is considered “some of the cheapest barrels on the planet”, adding that to balance the market, he expects that domestic oil producers reduce between 1.1 million and 1.7 million bpd of production.
“You are considering a 22 to 34 percent reduction in Canadian production,” said Tran. “These are incredible numbers, but these are incredible moments.”
Tran said the OPEC + deal between Saudi Arabia and Russia on Thursday was historic given the volume of cuts, but noted that production cuts were less than the global collapse in oil demand .
OPEC and its allies like Russia met on Thursday by video conference and agreed on the described deal to cut production by around 10 million bpd, delegates told Bloomberg, asking not to be identified. before an official statement. This reduction can continue for only two months, the borders then decreasing according to the evolution of the coronavirus.
The plan called for reductions of around 5 million barrels per day from producers outside the OPEC + group and could be operated gradually, the group seeking to overcome resistance from the United States, whose involvement is vital for an agreement.
“COVID-19 is an invisible beast that seems to have an impact on everything in its path,” said OPEC secretary general Mohammad Barkindo in a speech at the online meeting. “The fundamentals of supply and demand are horrible” and the expected excess supply, particularly in the second quarter, “exceeds anything we have seen before”.
While the reduction in titles is equivalent to an historic reduction of around 10% in world supply, it represents only a fraction of the loss in demand, which some traders estimate at 35 million bpd.
The Calgary-based ARC Energy Research Institute has released figures based on data from the U.S. Energy Information Administration showing that demand for gasoline, diesel and jet fuel has decreased by 7 million barrels per day in the past three weeks.
The collapse of the oil value chain prompted producers to stop production and led some companies, such as Husky Energy Inc. of Calgary, to reconsider previous asset sales.
The Financial Post has learned that Husky has abandoned plans to sell its retail gas station network.
“Due to the current market environment, we have suspended the strategic review of our Canadian retail and commercial fuels business,” said Husky spokesperson Kim Guttormson in an email.
Other companies, including Suncor Energy Inc. and Athabasca Oil Corp., have announced plans to halt production of certain oil sands.
“Due to the severity of the destruction of demand in North America in April and May, we estimate that the closed oil sands and heavy oil cuts in western Canada could exceed 1.1 million barrels per day in the second quarter of 2020, with additional short-term downside risk, “Thomas Liles, senior analyst at Rystad Energy, said on Thursday in a statement.
The Norwegian market research firm predicts that some level of production reduction in Canada is expected to last through the year. Canadian oil producers will reduce 513,000 b / d of oil production in the third quarter and 293,000 in the fourth quarter.
If these reductions are made, Rystad predicts that Canadian producers would eventually shut down most of the world’s production for economic and financial reasons, followed by Iraq, Venezuela and Brazil.
With files from Bloomberg and Reuters