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Wall Street Is Warming Up To Canada’s Oil Sands

Things are looking up for the Canadian oil sands. After years of strife and faltering profits, battered by environmental regulations and domestic pipeline shortages as well as the flood of cheap shale oil and gas coming out of the United States thanks to the West Texas shale revolution, 2021 is on track to be a much, much better year for Canadian oil.  While pretty much any and every oil-producing nation in the world has had a less-than-stellar year, to put it mildly, few have had it as bad as Canada. The already-bruised sector was absolutely battered by the novel coronavirus. On that infamous day in “Black April” that the West Texas Intermediate crude benchmark shocked the world by plunging into negative oil prices, essentially paying buyers to take crude off their hands, Canadian oil actually dipped below zero first. 

And that was just the icing on top of the nasty cake of troubles that Canadian oil has been facing. Since way before the pandemic’s blow to oil demand and oil prices, the industry faced years of severe pipeline shortages that left the Canadian oil sector with plenty of supply and plenty of demand, but no infrastructure to connect the dots, leading to a severe supply glut, forcing Canadian oil producers to sell their crude at a major discount. This unfortunate quagmire ultimately cost Canadian producers a devastating $20 billion in lost profits in 2018 alone, according to calculations by conservative think tank the Fraser Institute. On top of the pipeline woes, Canadian oil producers were further battered by conflict and environmental fines from polluter-paid principles thanks to the extraordinarily dirty bitumen--a thick, viscous, and sticky kind of crude oil--that comes out of the mega-polluting oil sands. 

Related: Will Biden Seal The Fate Of The U.S. Shale Patch?

But things are finally looking up for Canadian crude. Back in October Oilprice reported that 2021 was going to be a comeback year for the sector, thanks to “a tapering off of Mexican heavy crude exports to refineries on the United States Gulf Coast, opening up the market for Canadian oil” and the construction of three new, desperately needed pipelines. And now, just this week, World Oil is reporting that “after years in the shadow of the U.S. shale boom, the Canadian oil sands are emerging from 2020’s historic market crash with a slew of upbeat outlooks from Wall Street equity analysts.”

Wall Street is finally warming up to the Oil Sands, and a lot of major players are involved. “Morgan Stanley and Goldman Sachs Group Inc. are the latest firms to point out the industry’s ability to generate healthy cash flow next year as a reason to buy stocks like Suncor Energy Inc., Canadian Natural Resources Ltd., and MEG Energy Corp. That follows similar reports from BofA Securities and BMO Capital Markets,” World Oil reports. 

While the Oil Sands still face difficulties, especially due to their considerably harsh negative environmental externalities and a major contribution to global greenhouse gas emissions, they have an edge over U.S. shale producers in the current climate (so to speak). While shale wells have a short lifespan, requiring lots of liquid cash for constant oil exploration to keep shale output anything close to steady, the output from oil sands mines is constant. It looks like in 2021, slow and steady is finally going to win the race. 

In fact, the tortoise is already soaring ahead. According to data compiled by Bloomberg, Canadian oil producers absolutely crushed shale producers in the third quarter. “The eight largest oil-sands producers by market value posted a combined free cash flow of $1.4 billion for the third quarter, compared with $163.7 million from the top eight U.S. exploration and production companies.” As the shale revolution fades into the rearview mirror, it looks like the best is yet to come for Canadian crude.

By Haley Zaremba for Oilprice.com

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