Saudi Arabia declares oil price war on fellow OPEC (and non OPEC)members.

[nuckin_futz]

Finally some good news for the Canadian oil industry.............

 

Here's what's driving the Canadian dollar higher right now

Tue 31 Mar 2020 15:51:55 GMT

 

Two domestic factors are in play

 

I think we're seeing some inflows into Canadian oil and gas today because of two big government announcements.

 

The state of play in oil is very interesting. Canadian crude is landlocked and is trading around $5 barrel right now because of problems with takeaway capacity.

 

It's a massive short term problem.

 

However in the long-term, it's starting to look much brighter. Today TC Energy sanctioned the infamous Keystone XL pipeline with the help of the Alberta government. Construction will begin right away and when it goes into service in 2023, it will be capable of carrying 830K bpd to the US Gulf coast, drastically improving the economics in Canada. The Transmountain pipeline to the Pacific ocean is also expected to come online at around the same time.

 

Meanwhile, US shale is imploding with few prospects for salvation.

 

Ultimately, the projections have proven to be wrong. Last year, almost everyone in shale lost money at $55 oil. It was already in the process of collapsing before COVID-19 and the Saudi price war. Meanwhile Canadian Natural Resources alone generated $4.6 billion in free cash flow last year.

 

There was a schism in 2016 between US and Canadian oil. Shale got walloped and responded by borrowing more and promising better returns at scale. Canadian producers focused on cost reduction and paying down debt.

 

Canadian Natural Resources now says annual operating costs are just $11.49/barrel. Moreover, oil sands are an extremely long-lived asset and don't need the kind of endless investment that shale does.

 

So a big part of what the market is betting on today is that Canadian oil is a bigger part of the North American picture in 2-3 years than shale, or at least there will be a big relative improvement.

Huge wage subsidy

The second domestic factor is the enormous wage subsidy the Canadian government announced yesterday. The details still aren't out but any company with a 30% revenue drop can get the government to pay 75% of the first $58,700 in wages -- or $1179 week. It will last for three months. That means Canadian workers will be getting almost as much each week as Americans will be getting in total during the outbreak.

 

More importantly, it's a massive boost for companies, who will only have to pay as little as 25% of employee wages. Oil giant Suncor has 13,000 employees and could save as much as $50/m a month in wages.

 

The cost to the government of the program figures to be stratospheric but enormously helpful for labor-intensive businesses. That's not just oil and gas but anyone who is continuing to operate.

[Shift-4]

9 minutes ago, nuckin_futz said:

Finally some good news for the Canadian oil industry.............

 

Me and a senior leader in my organization were discussing the possibility for North American tariffs on oil imported from overseas. These tariffs would have to be a coordinated effort for North America.

Are you aware of any agreements that would keep this from happening (Trump being MBS's bitch notwithstanding)?

 

Would be an interesting strategy to prop up North American energy industry in the short term. Tariffs in place while $/barrel is below a pre-determined amount.

[nuckin_futz]

3 minutes ago, Shift-4 said:

Me and a senior leader in my organization were discussing the possibility for North American tariffs on oil imported from overseas. These tariffs would have to be a coordinated effort for North America.

Are you aware of any agreements that would keep this from happening (Trump being MBS's bitch notwithstanding)?

 

Would be an interesting strategy to prop up North American energy industry in the short term. Tariffs in place while $/barrel is below a pre-determined amount.

I don't see how that's feasible. It's basically a huge subsidy to the oil companies paid for by a massive tax on consumers.

 

Plus black market oil is a huge industry. Though not so much on this side of the pond.

 

If US shale dies, and Canadian projects survive, eventually it'll be a boon for Canada. If we can ride this out and they can't why keep them alive?

[Shift-4]

32 minutes ago, nuckin_futz said:

I don't see how that's feasible. It's basically a huge subsidy to the oil companies paid for by a massive tax on consumers.

 

Plus black market oil is a huge industry. Though not so much on this side of the pond.

 

If US shale dies, and Canadian projects survive, eventually it'll be a boon for Canada. If we can ride this out and they can't why keep them alive?

I prefer your last point

Just wondering if this would be something the NA energy industry would think about right now. And as of right now that tax on consumers would just bring prices back to recent average numbers. 

[Warhippy]

59 minutes ago, nuckin_futz said:

I don't see how that's feasible. It's basically a huge subsidy to the oil companies paid for by a massive tax on consumers.

 

Plus black market oil is a huge industry. Though not so much on this side of the pond.

 

If US shale dies, and Canadian projects survive, eventually it'll be a boon for Canada. If we can ride this out and they can't why keep them alive?

Can Alberta stomach a $7.5 billion investment though?  More importantly does the estimated tens of billions in bailout assistance for oil soon to be announced only kick the can down the road?  Saudis just announced further increases....

[nuckin_futz]

8 minutes ago, Warhippy said:

Can Alberta stomach a $7.5 billion investment though?  More importantly does the estimated tens of billions in bailout assistance for oil soon to be announced only kick the can down the road?  Saudis just announced further increases....

What other choice does Alberta have? What other industries are going to pop up there? tourism? I don't see people lining up to go to Lethbridge or Fort Mac on their holidays.

 

Let's see what the Saudi's actually do. They don't want to keep the prices low forever. Just long enough to kill off the weaker hands forever then bring it back up. If you can survive, you'll reap the rewards. There's an old saying in the markets that goes "if you want to be around for the good times, you have to be around all the time."

[Warhippy]

23 minutes ago, nuckin_futz said:

What other choice does Alberta have? What other industries are going to pop up there? tourism? I don't see people lining up to go to Lethbridge or Fort Mac on their holidays.

 

Let's see what the Saudi's actually do. They don't want to keep the prices low forever. Just long enough to kill off the weaker hands forever then bring it back up. If you can survive, you'll reap the rewards. There's an old saying in the markets that goes "if you want to be around for the good times, you have to be around all the time."

Ok.  But let's say it's 3 more months.  As a minimum.

 

What then?

[Shift-4]

4 minutes ago, Warhippy said:

Ok.  But let's say it's 3 more months.  As a minimum.

 

What then?

I would be shocked if it was less than the remainder of 2020

[nuckin_futz]

11 minutes ago, Warhippy said:

Ok.  But let's say it's 3 more months.  As a minimum.

 

What then?

 

 

 

Edited March 31, 2020 by nuckin_futz

[Warhippy]

43 minutes ago, nuckin_futz said:

 

 

 

Russia said it wouldn't even consider a reduction until late spring.  The Saudis said they can do this for 6 months

[Junkyard Dog]

20 minutes ago, Warhippy said:

Russia said it wouldn't even consider a reduction until late spring.  The Saudis said they can do this for 6 months

They may be waiting for the Saudi's to finish theirs then drop it for themselves so that they become a huge exporter. A passive-aggressive price war. Pass the blunt type stuff.

[RowdyCanuck]

16 minutes ago, Warhippy said:

Russia said it wouldn't even consider a reduction until late spring.  The Saudis said they can do this for 6 months

As a Canadian we all should be hoping oil prices go up cause then everything else in canada follows suit. 

 

I know , you don't care for the oil and gas industry but right now it's the back bone of Canada and we live and die on that mountain as it sits today. 

 

If they drag it out , it will hurt us and the USA most of all cause unlike other countries we inflated our selfs. Russia can do what ever it wants cause Putin doesn't put up with much.....

so while prices crash it won't be third world countries  you watch on the news , it will be Canada......this virus helps buy sometime but we will see how much.  

 this does allow us to push the reset button on how much people should be making in the oil industry and allows us to restructure the oil industry in Canada, without bad press cause everyone is watching something else. 

Silver lining I guess. 

[Warhippy]

33 minutes ago, Junkyard Dog said:

They may be waiting for the Saudi's to finish theirs then drop it for themselves so that they become a huge exporter. A passive-aggressive price war. Pass the blunt type stuff.

Russia has two of the largest new lines globally coming up soon.  As well as some of the largest new storage tanks.

 

Russia can hold out man as they'll have a direct line to China, soon central Europe and the ports to Japan via the old Vladivostok sites.

 

Russia's in a damned fine position to do nothing.

[Warhippy]

31 minutes ago, RowdyCanuck said:

 

 

I know , you don't care for the oil and gas industry 

Full stop.

 

Nowhere, ever have I said this.  Don't put words in my mouth.

[Junkyard Dog]

Just now, Warhippy said:

Russia has two of the largest new lines globally coming up soon.  As well as some of the largest new storage tanks.

 

Russia can hold out man as they'll have a direct line to China, soon central Europe and the ports to Japan via the old Vladivostok sites.

 

Russia's in a damned fine position to do nothing.

Pretty much. They can play the game to their benefit easy. Not as many countries will have that luxury.

[Warhippy]

46 minutes ago, Junkyard Dog said:

Pretty much. They can play the game to their benefit easy. Not as many countries will have that luxury.

It used to be the fragile 5 in the opec group, due to this it's now the shaky 6 and 2 more nations are set to join the group of the most fragile oil producing nations at economic risk due to this

[RowdyCanuck]

1 hour ago, Warhippy said:

Full stop.

 

Nowhere, ever have I said this.  Don't put words in my mouth.

That's why you only spread antioil everywhere on this forum.......look threw your posts and they paint a very nice picture..... 

[BPA]

5 hours ago, nuckin_futz said:

I don't see how that's feasible. It's basically a huge subsidy to the oil companies paid for by a massive tax on consumers.

 

Plus black market oil is a huge industry. Though not so much on this side of the pond.

 

If US shale dies, and Canadian projects survive, eventually it'll be a boon for Canada. If we can ride this out and they can't why keep them alive?

One can dream.  That brings Canadian Oil back into the game. 

 

[Warhippy]

1 hour ago, RowdyCanuck said:

That's why you only spread antioil everywhere on this forum.......look threw your posts and they paint a very nice picture..... 

I do not spread anti oil anywhere.  I speak out against ignorance.  Why do you think I keep rebutting your statements?  Like your ignoring basic market forces in the world of energy yet claiming to "teach people business"

 

I've been loud and proud about which pipelines should be built and which shouldn't and why.  I've also been very vocal about the business behind it when it does or does not make sense

 

But instead of factoring in to that you do what your type frequently do.  Jump to conclusions, level an accusation you cannot hope to back up and stick with it.

 

Lemme put it to you this way.  Oil, is currently worth less than the price of a happy meal.  There was public money already invested in to Keystone XL via AimCo.  The government of Alberta just pumped out a potential $7.5 BILLION in to a private project with a claim that they'd be ready to divest by as early as 2023 once the royalties had paid for it.

 

With oil trading as it is, the world supply sitting more full than it has since the 70s and production still increasing.  Explain how and why that is a sound use of taxpayers dollars and how a 3 year timeline to divestment is possible.

 

As a man of business as you've claimed to be.  You should be able to fill me in on that.

 

I am 100% adamant about Keystone being built.  But I am 100% against an investment of that magnitude with public money in to a private project after looking at TMX and for the exact same reasons.  Alberta JUSt put 26,000 workers out of a job yesterday.  Another 17,000 additional are expected to hit the skids in the next 2-3 weeks while the Alberta help portals are barely functioning in assisting those without work.  But instead of helping those people, the government is using their tax dollars to fund private enterprise with a laughable exit plan.

 

If you don't see the issue with that fine.  Keystone will be built.  But there's going to be a sizeable hit for it.

[RowdyCanuck]

3 minutes ago, Warhippy said:

I do not spread anti oil anywhere.  I speak out against ignorance.  Why do you think I keep rebutting your statements?  Like your ignoring basic market forces in the world of energy yet claiming to "teach people business"

 

I've been loud and proud about which pipelines should be built and which shouldn't and why.  I've also been very vocal about the business behind it when it does or does not make sense

 

But instead of factoring in to that you do what your type frequently do.  Jump to conclusions, level an accusation you cannot hope to back up and stick with it.

 

Lemme put it to you this way.  Oil, is currently worth less than the price of a happy meal.  There was public money already invested in to Keystone XL via AimCo.  The government of Alberta just pumped out a potential $7.5 BILLION in to a private project with a claim that they'd be ready to divest by as early as 2023 once the royalties had paid for it.

 

With oil trading as it is, the world supply sitting more full than it has since the 70s and production still increasing.  Explain how and why that is a sound use of taxpayers dollars and how a 3 year timeline to divestment is possible.

 

As a man of business as you've claimed to be.  You should be able to fill me in on that.

 

I am 100% adamant about Keystone being built.  But I am 100% against an investment of that magnitude with public money in to a private project after looking at TMX and for the exact same reasons.  Alberta JUSt put 26,000 workers out of a job yesterday.  Another 17,000 additional are expected to hit the skids in the next 2-3 weeks while the Alberta help portals are barely functioning in assisting those without work.  But instead of helping those people, the government is using their tax dollars to fund private enterprise with a laughable exit plan.

 

If you don't see the issue with that fine.  Keystone will be built.  But there's going to be a sizeable hit for it.

Your right oil is trading at next to nothing but if we could ship more we could off set the loses....look at the dollar tree for example , they buy in bulk and sell for next to nothing but people go there cause it's cheap....same thing for Costco.....

Alberta is helping them by approving those pipelines....instead of just handing out money, they are trying to bring back jobs.....old saying give a man a fish he eats for a day , teach a man how to fish......I think you know the rest. 

You need to think bigger, the pipelines go in that creates jobs and also booms in the towns they go by.....not to mention the trickle down affect.....

the reason why the tax payers are paying for it is cause no one wants to invest in a country that doesn't follow threw......

 

we already took a hit and it's only going to get worse. 

I would love a world where we weren't dependent on oil but it's our biggest earner , that's just the hand Canada was dealt, so we can either play the hand for all its worth cause if we fold , we are screwed......if we play our cards right we could set our selfs up for the next hand....( oil has a shelve life and you need money to fund research) 

So how you would deal with it?