While media attention is more focused on the situation surrounding the Covid-19 pandemic, discussions between Russia and Saudi Arabia over oil have also had a significant global impact. The dispute escalated rapidly as Russia refused to cut off their oil production at a meeting with OPEC (Organization of Petroleum Exporting Countries) member countries in Vienna on March 6. Saudi Arabia, the world’s largest exporter and second largest oil producer, reacted strongly by announcing a drop in its oil price and an increase in its production. Russia then escalated the tension between the two countries by announcing an increase in production of 500,000 barrels/day.
Although the impact on stock markets is significant, it is the smaller exporters in Africa and the Middle East that will be hit harder by this crisis. A good example is Nigeria, where oil exports account for almost 90% of total exports. These countries, whose economies are mainly based on oil exports, will have difficult choices to make in the coming weeks.
Stock markets reacted strongly to these announcements which led to a drop of nearly 30% in the price of a barrel of Brent Crude Oil on March 9, the largest drop in one day in the last 30 years. That said, with global demand declining sharply, the global covid-19 pandemic is also responsible for the drop in oil prices in recent days.
Situation in Canada
In Canada, oil producing companies have also been greatly affected. It is important to remember that Canada is the fourth largest producer and exporter of oil in the world, and the country’s reserves are the third largest in the world. In response to the drop in the price of a barrel of oil, several Canadian energy companies have changed their plans for the year 2020. While the price per barrel is below the profitability limit, many have reduced their production volume forecasts and cut their spending plans. Energy market investors in Canada have been hit hard by disputes between OPEC member countries and Russia. Suncor Energy’s (SU.TO) share price suffered losses of 33% in the past week, while the Canadian oil and gas industry average has seen a return of -26.4% in the past 7 days.
The following chart shows the share value (adjusted closing price) for 4 of Canada’s largest oil producers: Suncor Energy, Canadian Natural Resources, Imperial Oil Ltd, Enbridge Inc.).
- Orland, Kevin. (13 Mars 2020). Canadian Energy Companies Slash Billions In Spending on Oil Glut. From : https://www.bloomberg.com/news/articles/2020-03-13/canadian-energy-companies-slash-billions-in-spending-on-oil-glut
- The Economist. (12 Mars 2020). No one is likely to win the oil-price war. From : https://www.economist.com/finance-and-economics/2020/03/12/no-one-is-likely-to-win-the-oil-price-war
- The Economist. (12 Mars 2020). The low price of oil will test governments in the Middle East and Africa. From : https://www.economist.com/middle-east-and-africa/2020/03/12/the-low-price-of-oil-will-test-governments-in-the-middle-east-and-africa
- Natural Resources Canada. (9 Aout 2019). Crude oil facts. From: https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/crude-oil-facts/20064#L1
By : Alex Caillé, Energy & Utilities Sectors Analyst