Oil prices and financial markets around the world were crashing on Monday amid fears of the coronavirus and an energy war heating up between Saudi Arabia and Russia.
West Texas Intermediate crude oil closed the day down $10.26 US to $31.02 US a barrel while Western Canadian Select dropped to $17.80 US, down $10.08. The oil price collapse was the biggest drop since the Gulf War in 1991. Tensions in the energy sector are the result of OPEC failing to reach a deal recently about production rates. That led Saudi Arabia slashing prices and possibly ramping up production.
The oil price situation and continued fears that the coronavirus will impact the global economy has led to the financial markets on a steep downward trend. The TSX plunged by more than 1,660 points or a stunning 10.27 per cent. And energy stocks took a big hit. For example, Calgary-based Cenovus Energy saw its stock price plunge by 51.65 per cent to $3.82 and Calgary-based MEG Energy’s stock fell by 55.56 per cent to $2.48.
In a speech Monday at a Calgary Chamber of Commerce event, Mark Machin, President and CEO of CPP Investments, said it remains deeply committed to the energy industry and its investments in Alberta describing the province as an energy powerhouse.
Alberta Premier Jason Kenney said the province is now in “uncharted territory” as a result of the oil price collapse. The impact to Alberta and Canada could not be more serious.
“This is not just about Alberta. Energy is the single largest sub sector of the entire Canadian national economy. It is by far Canada’s largest export industry. Hundreds of thousands of Canadians depend on the energy sector directly for their livelihoods and all 36 million Canadians benefit from it at least indirectly,” said Kenney.
“The coronavirus has caused the global economy to slow down and with it demand for energy to decline for the first time in over a decade and this led to conversations between the OPEC cartel and the Russian government on curtailment of production to reflect declining demand. However, as you know, last Friday those conversations broke down after several years of cooperation between Russia and OPEC. This has resulted in the Saudi government in particular deciding to significantly increase oil supply in the face of a significant decline in demand.
“I understand this is the first time since 1930 that the world has seen a significant decline in energy demand met concurrently with a significant increase in energy supply. We are in uncharted territory. So we have seen a precipitous decline in the price of global oil.”
Kenney said this situation comes at a bad time for Alberta after five years of economic decline and stagnation.
“Economic fragility combined with a global recession and a collapse in prices constitutes a profound challenge for Alberta and for Canada. This will obviously be a very difficult time for everyone in our energy sector and will affect the broader Alberta economy,” he said.
He said it cannot be predicted how long this devastating oil price collapse or the global coronavirus recession will affect the province.
“All options will be on the table to do everything that we can within our capacity to help to protect jobs and Albertans. I will be appointing an urgent economic advisory committee to be chaired by Dr. Jack Mintz (University of Calgary’s School of Public Policy) to provide expert external advice on how to meet the challenge of this downturn.”
On social media circles, the hashtag #BlackMonday was trending.
In a tweet, high profile Calgary entrepreneur and investor Brett Wilson said: “So the market is collapsing over a price war on crude oil. This is a dream come true for @gmbutts and @JustinTrudeau and @GretaThunberg and the ecoTerrorist movements. Unfortunately the global economy is harmed. But do they care?!”
Also in a tweet, Matt Wolf, Executive Director of Issues Management for the Premier of Alberta, said: “To those seemingly enjoying watching the oil price collapse: A) Forget politics. Real families will feel devastation firsthand. B) If Russia & Saudis succeed in wiping out Western oil production, dictatorships will once again have a stranglehold on the global economy.”
Omar Abdelrahman, economist with TD Economics, said the response in oil markets to the combination of demand and supply shocks has been to send benchmark prices more than 45 per cent below their January highs.
“On the demand front, the COVID-19 outbreak has been impacting expectations for the year and is already driving demand destruction as quarantine efforts reduce demand for jet fuel and gasoline. Indeed ,the International Energy Agency today published revised estimates in its March report, suggesting a 90k bpd drop in demand for the year. If realized, this would be the first drop in demand since the financial crisis. The possibility of a pandemic could bring down demand down even further,” he said.
“For Canada, the net impacts are negative given Canada’s position as a net oil exporter. We are in the process of reviewing our real GDP forecasts for the year as a whole, and are penciling in an expected terms of trade and income shock. Provincially, Alberta, Saskatchewan, and Newfoundland and Labrador’s real GDP forecasts will likely be downgraded significantly for the year. Additionally, some of the aforementioned provinces may need to fill a sizeable gap in their commodity-sensitive budgets given the marked slump in oil prices.”
