Global oil markets are reeling after a weekend attack on key Saudi oil facilities. But while global consumers seek to diversify their oil sources away from fragile Middle East oil supplies, Canadian oil remains locked in and inaccessible to much of the world.
“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,” Michael Tran, analyst at RBC Capital Markets, told the Financial Post in an email. “Asia is not only the world’s largest engine of oil demand growth, but the region the home for 75 per cent of total Saudi exports. 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.”
Given the rising tensions in the Middle East, the threat of sidelining nearly a significant amount of global oil production is no longer a hypothetical, a black swan or a fat tail. The lesson learned over the weekend is one of ‘vulnerability’, which could shift investors sentiment towards more stable regions of supply like Canada, Tran said.
Indeed, countries with some of the world’s largest oil reserves such as Venezuela, Canada, Iran and Iraq are facing a variety of obstacles to raise their production.
“While many prolific oil producing regions are subject to geopolitical infused attacks, the Canadian energy industry remains saddled with a different dose of political risk stemming from production curtailments to ownership of energy infrastructure,” Tran noted.
Citibank’s Ed Morse echoed concerns about supply fragility in his note late last night, titled ‘A crude awakening. Attack on Saudi facilities may push crude by $10/bbl.’
“No matter whether it takes Saudi Arabia 5 days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the Kingdom’s infrastructure – that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil, which Citi reckons should have been a good $10 a barrel higher than it has been for months,” Morse noted.
Here’s what’s you need to know this morning:
- Crude prices jump most on record in the single worst sudden disruption to the oil market ever
- Attack on Saudi Abqaiq finds the oil market’s Achilles heel
- U.S. futures down after Saudi attacks spark rush for safety
- Conservatives promise to cut tax on lowest income bracket as Scheer tours B.C.
- Greens to reveal platform and other leaders play offence as campaign enters Day 6
- Blackstone to buy Dream Global’s assets for $6.2 billion
- Don’t-pay-till-you-die reverse mortgages are booming in Canada
- Vindicated stock bulls now see choppy markets ahead for Canada
- China’s slowdown deepens in August; industrial output growth falls to 17-1/2 year low
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- Cannabis sector sees its first fraud case as OSC alleges misuse of investor funds
- Jason Kenney to meet institutional investors in New York as Canadian energy stocks flounder
- Foreign buyer vacancy tax unlikely to derail housing rebound, real estate market watchers say
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- Christine Elliott, Deputy Premier and Minister of Health, will be joined by Michael Tibollo, Associate Minister of Mental Health and Addictions, Vic Fedeli, Minister of Economic Development, Job Creation and Trade and MPP for Nipissing, and Natalia Kusendova, MPP for Mississauga Centre, for an announcement in North Bay, Ont.
- Green party Leader Elizabeth May unveils the party’s platform in Toronto
- The Greater Vancouver Board of Trade releases a survey of the business community and general public on their opinions on the issues in the federal election. Candidates Jesse Brown of the Green party, Ed Fast of the Conservatives, Peter Julian of the NDP and Jonathan Wilkinson of the Liberals are scheduled to participate in the event
- Denver Gold Forum, featuring the world’s biggest gold miners, kicks off as gold scales new highs
The S&P/TSX composite index rose another 39.14 points on Friday to reach 16,682.42, reaching a new closing high, but analysts that had been bullish in the run-up are now advising caution, according to Bloomberg.
In August, Brian Belski, chief investment strategist at BMO Capital Markets, said he was staying “very bullish on Canada” with a 17,000 year-end target for the key equity gauge. He now expects more new highs for the benchmark but added that things could get choppy. Candice Bangsund, portfolio manager at Fiera Capital, urged investors in mid-August to “resist the temptation to panic and recommend staying invested at this time.” She’s continuing that theme, though “periodic bouts of volatility are surely to prevail.”
Longer term fundamentals for the global economy remain largely intact and Canadian stocks should outperform due to the bias toward larger value-oriented sectors of the market such as financials and banks and resources, which should catch up.Eight Capital’s technical research analyst Tina Normann had said that a more attractive entry point would present itself for investors in mid-September, Bloomberg reports.
With files from The Canadian Press, Thomson Reuters and Bloomberg
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