Prices tumble as ‘Delta variant has gained control of the oil market’ by Chris Varcoe, Aug 21, 2021, Calgary Herald
After a strong price rally through the spring and early summer, a dose of reality has set in for volatile oil markets — and the financial prudence demonstrated by Canadian producers this year should pay off.
It’s not a large enough decline to see oilpatch executives pulling out their erasers, or their hair, to rewrite 2021 business plans.
However, energy markets are clearly worried about the impact of the Delta variant on global oil demand.
“The trajectory has a lot of people concerned, the absolute price level doesn’t. If we can find some support and strength around this level, then life will go on,” said Ian Nieboer, managing director of energy consultancy Enverus in Calgary.
“If the downdraft has a much lower floor than here, then I think there will be eyebrows raised.”
Some wise and practical countries that care about their citizenry and economy are keeping health restrictions in place, while some employers are delaying plans to bring staff back to their offices, such as the City of Calgary extending the return of workers until Oct. 20.
On a much broader scale, these changes could lower expected growth in oil use during the second half of the year for gasoline and jet fuel.
“It feels like the Delta variant has gained control of the oil market and the narrative here,” said analyst Patrick O’Rourke with ATB Capital Markets.
For Canadian petroleum producers, the commodity price decline is noteworthy, as it’s been accompanied by eroding share prices.
The S&P/TSX Capped Energy Index has dropped about 12 per cent in the past month, although it’s still up 21 per cent for the year.
Yet, the recent dip in oil prices isn’t altering spending plans or causing consternation as companies prepare for the fall.
“It’s going to be volatile here for a while,” said Doug Bartole, CEO of junior producer InPlay Oil Corp.
“I love being in the $60 to $70 range. Companies are disciplined, we are being disciplined, we’re not overspending capital … To me, it’s a little market correction at the end of summer. I am not concerned.”
Earlier this month, the International Energy Agency said global oil consumption had jumped by 3.8 million barrels per day (bpd) in June as European and North American economies reopened and mobility levels increased.
However, demand growth “abruptly reversed course in July” and the outlook for the rest of the year was downgraded because of the deteriorating COVID-19 situation.
Consumption is now expected to increase to only 96 million bpd in 2021, well off the pre-COVID peak of about 100 million bpd; demand growth is 500,000 barrels per day lower than the IEA’s previous estimate.
Meanwhile, oil production is expected to increase in the coming months following a decision by OPEC+ countries to boost output.
“Prices had gotten ahead of themselves a bit. We still have high levels of spare OPEC capacity” to produce additional barrels, said Jackie Forrest, executive director of Calgary-based ARC Energy Research Institute.
Even with the recent drop in commodity prices, strong natural gas prices and a falling loonie have helped buffer the bottom line for Canadian petroleum producers, said Sadiq Lalani, chief financial officer at Calgary-based Kelt Exploration.
He noted prices are still strong enough for new wells to pay out within six to nine months.
What is also helping producers is they have steadily strengthened their balance sheets after a punishing 2020, with debt levels now falling and modest capital spending plans put in place this year.
ARC Energy Research Institute projects after-tax cash flow for the sector will hit $74.6 billion this year, while the reinvestment level by Canadian producers sits at only $28.8 billion, giving companies plenty of financial flexibility.
“Most of these companies are still spending well below cash-flow generation. So I don’t expect to see, at these prices, any revisions downward to (spending) activity,” said Forrest.
As for 2022, Nieboer expects prices for West Texas Intermediate crude oil will average in the high $50-a-barrel range as rising supply catches up with demand.
“This is still a pretty healthy environment, all else being equal for producers,” he added.
“We don’t see a catastrophe on the horizon, it’s just a little bit weaker.”
Thank Kenney ‘n Hinshaw, and Henry ‘n Horgan, if you lose your shirts and or oil patch jobs.
I am horrified how Kenney, Hinshaw and the UCP have treated Alberta doctors, nurses and support staff (and their loved ones) during this pandemic, and put them and the citizenry (including me and my loved ones), at increased risk.
Nurses may be recalled as ICU, ERs in Edmonton and South Zone under pressure by Lauren Booth, Aug 20, 2021, Calgary Herald
Nurses may be recalled as ICU, ERs in Edmonton and South Zone under pressure
According to the email, nurses were previously redeployed to help with COVID-19-specific roles like in contact tracing, Health Link and with vaccinations, but now the need is wider.
“In the next week, we will be looking at supporting staffing in the ICUs, emergency departments and other units that are experiencing significant staffing issues through further redeployments as well as including but not limited to mandating overtime and potentially cancelling vacations,” states an email from Rick Mann, a labour adviser for AHS.
“When it’s an emergency you have to deal with the emergency … (but) this didn’t have to happen,” he said in an interview Friday.
“We didn’t have to have the Calgary Stampede, we didn’t have to say we aren’t going to do tracing anymore. This was all foreseeable.”
Harrigan said this isn’t because of summer vacation-related staffing shortages, otherwise this would happen every year.
“But we’ve never had a situation where they’re having to close services so often as they don’t have staff, and then if you’re short staff don’t say, ‘By the way I want to cut your pay and make conditions a lot worse.’”
AHS spokesman Kerry Williamson said in an email Friday that redeployment has been part of the province’s pandemic response all along. He said the use of this part of the collective agreement has been used before, when necessary.
“We are doing all we can to avoid the use of mandatory overtime or cancelling of pre-approved vacation time,” he said. “Discussion about the need to utilize these options to ensure staffing needs are met will occur at the local level with operational leaders, staff and union representatives.”
221 in hospital
Alberta’s publicly-available data shows there were 221 people in hospital including 48 in ICU by Friday. There are 749 new cases of the disease, and 6,709 active cases in the province. A total of 2,343 people have died.
The number of people falling seriously ill from the disease has climbed in recent weeks as overall active cases surged. The spike in cases is largely attributed to the more contagious Delta variant now dominant in Alberta, and infections among those who are not vaccinated.
Twenty-three more people were admitted to hospital for the disease since Thursday. A month ago there were around 80 people in hospital for COVID-19 in the province.
More than 80 per cent of Albertans hospitalized for COVID-19 haven’t been vaccinated and about five per cent have had only one shot. About 14 per cent of COVID patients are fully vaccinated.
Of Friday’s new cases, about 73 per cent of people were unvaccinated, 12 per cent were partially vaccinated, and 15 per cent were fully vaccinated.
COVID-19 vaccinations have been widely proven to dramatically reduce the risk of getting severely sick and hospitalized if they catch the disease but, particularly with the more contagious Delta variant, getting sick is still possible, though the likelihood of having severe symptoms is small.
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