Posthaste: Canadian oilpatch is enjoying a rare positive moment — will it last? – Financial Post

Seasoned oilpatch investors have learned never to get too excited about a few positive price movements, but they can at least let out a sigh of relief as Brent crude prices crossed US$45 and the U.S. crude benchmark remained well above US$40 per barrel this week.

Oil is trending higher this morning too, after the American Petroleum Institute said that crude stocks fell by 4 million barrels last week, compared to analysts’ expectations for a draw of 2.9 million barrels.

The 16-company S&P/TSX Capped Energy Index also enjoyed a rare good day yesterday, jumping 2.13 per cent but remains catastrophically wounded, down 47 per cent for the year.

Oslo-based Rystad Energy notes that positive comments about recovering demand in Asia by Saudi Arabian Oil Co., or Aramco, has boosted confidence that demand is on the right track at least in the world’s most energy-thirsty region.

“On the other side of the globe, talks of a coronavirus-related economic relief in the U.S. help boost confidence among oil and gas firms, that have so far lacked the funds to invest this year, or were simply avoiding the risk in a depressed market,” said Rystad analyst Bjornar Tonhaugen in a note.

Energy consultancy IHS has been even more bullish, revising upward its average price of Brent to US$42.35 per barrel in 2020 and US$49.25 per barrel in 2021 — up US$7.09 and US$5.25, respectively, from its outlook in May.

“Emerging bruised and battered from the worst of the COVID-19 outbreak, oil markets are now at a delicate pivot point as they transition” to the next phase of recovery IHS said in a report last week.

In Canada, two acquisitions valued at more than $950 million also suggests the market may have bottomed out and larger players with cash are comfortable enough to splash some cash on assets being offered at a bargain.

Canadian Natural Resources Ltd. bought Montney-focused Painted Pony Energy Ltd. for $461 million earlier this week, while last month U.S. oil major ConocoPhillips agreed to buy assets from Kelt Exploration Ltd in the same shale oil play for $500 million.

Citibank Group expects the U.S. ‘shale gale’ to remain subdued for the next two years, which would help cap global oil supply and make room for Canadian output.

“Over 2020-21, the declines in U.S. oil production due to the oil price crash now look fairly locked-in through mid-to-end-2021, with production mostly some 2-3-million bpd below January 2020 levels,” Citi said in a note Tuesday.

“Even as prices have recovered to the US$40s, temporary supply curtailments are reversing, but production trajectories are still lower over 2020-21 than they otherwise would have been.”

There has also been some other morsels of good news for the Canadian oilpatch lately.

A White House permit issued in July raised the cross-border shipping limit for TC Energy Corp.’s Keystone pipeline to 760,000 barrels a day, from 590,000 bpd.

The U.S. government is also contemplating a massive infrastructure bill, which would be positive for oil demand and for bitumen, which is a key product needed to build roads.

“On the heavy oil side, MEG (Energy Ltd.) stated that it is seeing interest from USGC (U.S. Gulf Coast) refiners to do longer contracts than just buying on the spot market. This is a good indicator of potential tightness, according to management,” EightCapital analysts said in a note. “Also, PADD II (MidWest) refiners are expressing concerns on lack of heavy oil supply. This is supportive of our continued bullish view on global heavy oil dynamics.”

Still, there have been many false dawns for the oil market, with more infighting between OPEC members and its allies or the return of coronavirus cases in strong numbers capable of derailing the recovery.

A win for Joe Biden and his newly appointed running mate Kamala Harris — who co-sponsored the original Green New Deal —, in the U.S. presidential elections in November, could spell trouble for the oilpatch next year.

“Overall, caution is the word. A batch of good indications will always help the bulls, but seeing the bigger picture it may make much more sense to expect a slow recovery, not only in oil demand, but also in prices,” Rystad’s Tonhaugen said.

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