Canadas fuel prices to rise after attack in Saudi Arabia – Grainews

Canada\s fuel prices to rise after attack in Saudi Arabia - Grainews
Trump: It looks like Iran hit Saudi Arabian oil facilities
Higher oil prices spurred by an attack on Saudi Arabian oil facilities boosted the Canadian energy sector on Monday but are expected to result in higher fuel prices for consumers.

The index that tracks leading energy company share prices on the Toronto Stock Exchange closed up 9.25 per cent at 147.91 — but still down by 25 per cent compared with its 52-week high set last October — as U.S. benchmark oil prices finished the day ahead by more than 12 per cent.

“The unprecedented outage over the weekend would have been a boon for Canadian crude if the TMX pipeline was operational given the close proximity to Asia,” Tran wrote. “The ability to move Canadian crude to fill a supply gap does not only bring financial benefits for Canada, but also serves the world from an energy security perspective.”

Double-digit increases were posted by energy firms including Baytex Energy Corp. (up 16.5 per cent), Encana Corp. (up 16.3 per cent), MEG Energy Corp. (up 13.8 per cent), Canadian Natural Resources Ltd. (up 12.8 per cent) and Cenovus Energy Inc. (12.0 per cent) — all headquartered in Calgary.

If it takes an especially long time to get oil production in Saudi Arabia back up online, then a supply issue — and therefore a price issue — could arise. (Not super relevant to your regular person, but there has been an oversupply issue for some time, said Fogwill, and this could actually bring the market back into balance.)

"Our view was that Canadian oil and gas companies were inexpensively priced before. What we're seeing now is a movement in the oil price, not just at the front end of the curve but also really out through calendar '20 and '21, which really just means we're seeing a bit of risk premium creep into the oil price," said Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets.

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Stronger global oil prices are expected to continue to be supported even if the Saudis are able to restore production quickly, translating into more cash flow for energy companies to invest going forward, he said.

Higher oil prices could raise average gasoline prices in Canada by between five and 12 cents per litre over the next two weeks, depending on how long Saudi Arabia production is affected, said Patrick DeHaan, head of petroleum analysis for GasBuddy.

Last week, eight energy companies were dropped from the main Toronto Stock Exchange index because their market valuation had fallen below the minimum level for inclusion.

This means the supply will more or less remain the same, with the gap between actual production and demand smoothed over from this rainy-day collection of oil, so the prices won’t go haywire enough to trickle down much to the regular consumer.

The cuts included Canada's two largest drilling companies — Ensign Energy Services Inc. and Precision Drilling Corp. — as lower producer spending has translated into fewer wells being drilled.

The United States keeps 695 million barrels of oil in underground caverns in Texas and Louisiana just for this purpose — to stabilize oil prices in case of catastrophe. (The U.S. will use these as necessary, the Trump administration said.)

Analysts blame the lack of investor interest in Canadian energy companies on the uncertain future of pipeline access to markets, a factor cited by the Alberta government to continue to constrain crude production this year.

“It is the biggest shock to the oil markets since (Hurricane) Katrina. And, like Katrina, it will likely haunt us for months, at least weeks,” Tom Kloza, chief oil analyst for the Oil Price Information Service, told CNN.

"Part of the irony is we could be producing a million barrels a day more by now had we had some of these pipelines, and that certainly would have helped deal with some of the lost volumes here with the outage," said Ollenberger.

“(The attack is) a bit of a reminder for the crude oil buyers and sellers that there is still geopolitical risk in the Middle East,” said Fogwill. “When you get a period of calm, people tend to forget that.”

The Saudi outage serves as a reminder to oil customers around the world of the political uncertainties in Middle Eastern countries, said Bob Schulz, a business professor with the Haskayne School of Business at the University of Calgary.

The situation will enhance the reputation of Canadian oil, he said, and may spur Canada's main customer, the United States, to redouble efforts to ensure stalled cross-border pipelines like Keystone XL are approved and completed.

In this Saturday, Sept. 14, 2019 file photo, made from a video broadcast on the Saudi-owned Al-Arabiya satellite news channel, smoke from a fire at the Abqaiq oil processing facility fills the skyline, in Buqyaq, Saudi Arabia. The weekend drone attack on one of the world's largest crude oil processing plants that dramatically cut into global oil supplies is the most visible sign yet of how Aramco's stability and security is directly linked to that of its owner — the Saudi government and its ruling family. Anonymous / The Associated Press

In Washington, U.S. President Donald Trump said he had approved the release of U.S. strategic petroleum reserves "if needed" to stabilize energy markets. He later said expanding domestic energy output meant the U.S. doesn't need Middle East oil.

"A worst case scenario — with profound implications for the global economy — is a broader regional conflict that puts Gulf oil production, processing and transport in the crosshairs," said Bill Farren-Price, director of RS Energy Group, in an emailed statement.

Short-term affects in Canada will likely be muted, said CEO Allan Fogwill of the Canadian Energy Research Institute, noting that other OPEC countries have surplus capacity they can bring on and oil will be brought out of storage.

The S&P/TSX Capped Energy Index jumped by 9.3 per cent, regaining a big chunk of ground lost earlier in the year. Shares in Canadian Natural Resources jumped 13 per cent on the Toronto Stock Exchange, Baytex Energy rose almost 17 per cent and MEG Energy climbed 14 per cent.

More pipeline or rail access to markets is needed to allow growth in the Canadian energy sector, said Richard Masson, an executive fellow at the University of Calgary's School of Public Policy.

"Higher prices are a good thing but most of what companies have been doing with their cash flow these days is paying down debt or buying back equity," he said.

Johnson said his base case scenario is it will take somewhere between four to six weeks for full Saudi production to come back on line. He expects benchmark U.S. crude will bounce up by $5 to $10 a barrel from his current price forecast of oil in the mid $50-a-barrel range.

"It should strengthen balance sheets and is probably good in terms of tax and royalty (revenue) but I don't think it has a meaningful change to investment levels or jobs."

“It will mean higher prices and that means more revenue and cash flow for producers of oil. We think those producers are still going to be very guarded with what they do with the cash,” said Peter Tertzakian, executive director of ARC Energy Research Institute.

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The immediate consequences of Saturday’s attack — rising oil markets and share prices — serve as a reminder that global oil markets have long been influenced by geopolitical risk factors, even if oil markets have discounted such issues in recent years.

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In the days and weeks ahead, it’s an open question just how much impact the attack on critical energy infrastructure in Saudi Arabia — one of the world’s largest and most influential petroleum producers — will have on the Canadian sector.

WASHINGTON — U.S. President Donald Trump declared Monday it "looks" like Iran was behind the explosive attack on Saudi Arabian oil facilities. But he stressed that military retaliation was not yet on the table in response to the strike against a key U.S. Mideast ally.

Other supply problems have cropped up in recent years, such as the sharp reduction of Venezuelan heavy crude exports into the U.S., creating opportunities for Canada’s producers, but they couldn’t be met because of ongoing pipeline bottlenecks.

Oil prices soared worldwide amid the damage in Saudi Arabia and fresh Middle East war concerns. But Trump put the brakes on any talk of quick military action — earlier he had said the U.S. was "locked and loaded" — and he said the oil impact would not be significant on the U.S., which is a net energy exporter.

The Saudi government called the attack an "unprecedented act of aggression and sabotage" but stopped short of directly pinning blame on Iran.

The Israeli military is armed with the latest fast jets and precision weaponry, yet it has turned to its fleet of drones to hit targets in Syria. Deniability has played a big factor – the ability of drones to elude radar and therefore keep targets guessing about who actually bombed them is playing well for Israeli leaders who are trying to prevent an increasingly lethal shadow war with Iran from developing into an open conflict.

Trump, who has repeatedly stressed avoiding new Middle East wars, seemed intent on preserving room to manoeuvr in a crisis that Secretary of State Mike Pompeo had immediately called Irans fault. Pompeo said Saturday, "Iran has now launched an unprecedented attack on the worlds energy supply."

Trump, too, had talked more harshly at first. But by Monday afternoon he seemed intent on consultations with allies.

"It wasnt an attack on us, but we would certainly help them," he said, noting a decades-long alliance linked to U.S. oil dependence that has lessened in recent years. The U.S. has no treaty obligation to defend Saudi Arabia.

Trump said he was sending Pompeo to Saudi Arabia "to discuss what they feel" about the attack and an appropriate response.

Drones are now an integral part of the inventory of the regions most advanced militaries, and the also-rans. Non state actors have been clamouring to secure them as well – convinced by the utility of hard-to-detect, dispensable flying toys to be used as weapons of war.

One U.S. official, speaking on condition of anonymity to discuss internal deliberations, said the U.S. was considering dispatching additional military resources to the Gulf but that no decisions had been made. The U.S. already has the USS Abraham Lincoln aircraft carrier battle group in the area, as well as fighter jets, bombers, reconnaissance aircraft and air defences.

Trump, alternating between aggressive and nonviolent reactions, said the U.S. could respond "with an attack many, many times larger" but also "Im not looking at options right now."

Mohammed bin Salman, the Saudi crown prince, openly lamented the disparity between the quality of his troops weapons and the paucity of their fighting skills. It is unacceptable that we are the worlds third or fourth biggest country in military spending but our army is ranked in the twenties [in ability], he said in 2016. There is a problem.

American officials released satellite images of the damage at the heart of the kingdoms crucial Abqaiq oil processing plant and a key oil field, and two U.S. officials said the attackers used multiple cruise missiles and drone aircraft.

In their initial statements about this weeks attack, Saudi officials have confirmed the weapons were Iranian-made but have not gone as far as the US in directly blaming Iran. As with the tanker attacks, they may now say that a lengthy investigation is needed to determine the culprits, giving time for passions to fade.   

Private experts said the satellite images show the attackers had detailed knowledge of which tanks and machinery to hit within the sprawling Saudi oil processing facility at Abqaiq to cripple production. But "satellite imagery cant show you where the attack originated from," said Joe Bermudez, an expert at the Center for Strategic and International Studies who examined the images.

Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!

"What the photos indicate is that someone planned a sophisticated, co-ordinated attack that really impacted the production of oil at this facility," he said.

Saudi Arabia has the power to bring fire and fury down on its most-hated foe but may be reluctant to actually that power. The reality is the Saudis are deeply skittish about the prospects of any war with Iran because they know they will be Tehrans main target. 

The U.S. alleges the pattern of destruction suggested Saturdays attack did not come from neighbouring Yemen, as claimed by Iranian-backed Houthi rebels there. A Saudi military alleged "Iranian weapons" had been used.

The kingdom surely dream of ridding itself of its rivals in the Islamic Republic across the narrow water. But if the price of confronting Iran is far more smoke billowing above burning Saudi oil fields then Riyadh will probably look for a way to back down. 

The Saudis invited United Nations and other international experts to help investigate, suggesting there was no rush to retaliate.

In an evening tweet, Donald Trump even appeared to give Saudi Arabia a say in whether the US would attack Iran. [The US is] waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!

Jon Alterman, the chief Middle East expert at the Center for Strategic and International Studies, said the Saudi caution reflects the kingdoms wariness of taking on Iran.

If fighting breaks out between the US and Iran, the Iranians will have relatively few chances to strike America directly. They could target US ships in the Persian Gulf or order their Shia militia proxies to harass American forces in Iraq. 

"I dont think theres a great independent Saudi capability to respond," he said. "You dont want to start a war with Iran that you dont have an idea how youre going to end."

In New York, the new U.S. ambassador to the United Nations, Kelly Craft, condemned the attack and said that "emerging information indicates that responsibility lies with Iran."

Although the kingdom is the worlds third largest defence spender after the US and China, its military is fairly ineffective and would struggle against Iranian forces hardened by decades of unconventional warfare across the region. 

At the Pentagon, Defence Secretary Mark Esper suggested Iranian involvement, too. In a series of tweets after meeting with Trump and other senior national security officials, Esper said the administration was working with partner nations "to address this unprecedented attack and defend the international rules-based order that is being undermined by Iran."

Iran rejected the allegations, and a government spokesman said there now is "absolutely no chance" of a hoped-for meeting between Iranian President Hassan Rouhani and Trump at the U.N. General Assembly next week.

"Currently we dont see any sign from the Americans which has honesty in it, and if the current state continues there will be absolutely no chance of a meeting between the two presidents," spokesman Ali Rabiei said.

Downplaying any talk of imminent U.S. military action, Vice-President Mike Pences chief of staff, Marc Short, told reporters at the White House that Trumps "locked and loaded" was "a broad term that talks about the realities that" the U.S. is "safer and more secure domestically from energy independence."

The new violence has led to fears that further action on any side could rapidly escalate a confrontation thats been raging just below the surface in the wider Persian Gulf in recent months. There already have been mysterious attacks on oil tankers that Washington blames on Tehran, at least one suspected Israeli strike on Shiite forces in Iraq, and the downing of a U.S. military surveillance drone by Iran.

Those tensions have increased ever since Trump pulled the U.S. out of Irans 2015 agreement with world powers that curtailed Iranian nuclear activities and the U.S. re-imposed sanctions that sent Irans economy into freefall.

The weekend attack halted production of 5.7 million barrels of crude a day, more than half of Saudi Arabias global daily exports and more than 5% of the worlds daily crude oil production.

The U.S. and international benchmarks for crude each vaulted more than 14%, comparable to the 14.5% spike in oil on Aug. 6, 1990, following Iraqs invasion of Kuwait.

U.S. stocks were down but only modestly. Major stock indexes in Europe also fell. Markets in Asia finished mixed.

At a news conference, Saudi military spokesman Col. Turki al-Maliki said, "All the indications and operational evidence, and the weapons that were used in the terrorist attack, whether in Buqayq or Khurais, indicate with initial evidence that these weapons are Iranian weapons."

Russias Foreign Ministry, while expressing "grave concern" about the attack, warned against putting the blame on Iran, saying that plans of military retaliation against Iran would be unacceptable.

AP Writers Jon Gambrell and Aya Batrawy contributed from Dubai, United Arab Emirates. AP writers Zeke Miller and Michael Biesecker contributed from Washington, Tali Arbel from New York, Elaine Kurtenbach from Bangkok, Nasser Karimi from Tehran, Dave Rising from Berlin, Samy Magdy from Cairo and Qassim Abdul-Zahra from Baghdad.