It’s hard enough at the hardest of times to defeat an adversary you can see.
It’s a really tough call when you can’t see what’s coming, or where it’s coming from.
There is no mystery when it comes to cause and effect when we look at the energy picture in this country and morph it with the economic one.
In just seven days, there has been an evaporative destruction of demand for crude and its related refined product offshoots, most notably gasoline and jet fuel. The other side of the balance sheet is out of balance with supply of crude now overflowing the floodgates.
The demand drop can be explained, but not easily cured as virtually all of the blame can be placed on Covid-19.
This virus knows no borders and has slithered and leached into all corners of the globe.
Governments of any and all political stripes appear to have given up on their internal petty squabbles and are looking to join forces to protect those they report to — the people who elected them.
With borders and businesses being shut down, and consumers being shut in, the gas pumps are beginning to grow cobwebs. Sure, prices are falling, but fewer and fewer have a need to drive to work or anywhere for that matter. Although many analysts may look at weekly gasoline demand figures published by the Energy Information Administration (EIA) for the temperature of the economy, that is not the data that I’m watching.
In my opinion, the true indicators of economic health are the diesel and jet fuel numbers. Diesel gets manufactured goods to the consumer and jet fuel gets the employed consumer on holiday. The two go hand in hand. In the last two weeks the jet fuel demand has fallen by 13% and 12% respectively. The figures will get worse until this coronavirus growth curve begins to flatten.
How long that will take is anyone’s guess.
The first casualty in the energy sector has been here in Canada, or more accurately in Alberta where the picture is dim as a result of the price war between two self-centered and ethically vacant producers, namely Saudi Arabia and Russia. The Saudis are determined to teach the Russians a lesson in who really runs the crude oil pricing show and have flooded the market.
If that wasn’t bad enough for Canadian producers, demand for crude is in free fall.
The net result is that Western Canadian Select (WCS) is now selling at $7.47/bbl. Suncor’s WCS operating costs is $28.20/bbl. How long can Alberta producers tread water in red ink? Some say weeks, others say a few months.
Looking south of the border, U.S. shale oil is also in trouble as they too are operating at a loss.
Unlike the Covid-19 crisis, the crude oil price is easily and immediately fixable and would get the oil industry in this country back to work. All it needs is for the Russians and Saudis to get back to the table and stop the crude oil flood.
That’s the real problem, but at this point they can’t even agree on the shape of table or where to position it in the room, or in what room.
~ The Grouch
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