Canadian Energy Sector Poised to Benefit from Iran Supply Shock, According to Eric Nuttall
With recent developments in the Middle East, Canada is in a unique position to step up as a stable, secure supplier of oil, says a leading expert in the oil and gas industry.
Oil prices spiked Monday due to shipping bottlenecks in the Strait of Hormuz and growing concern over how military action against Iran by the U.S. and Israel could impact global supply.
U.S. crude jumped 7.6 per cent to US$72.12 per barrel, while the global benchmark, Brent, climbed 8.6 per cent to US$79.11 in early trading.
“We have to recognize the strategic importance and the historic importance of what’s happened just in the last 24 hours,” said Eric Nuttall, senior portfolio manager at Ninepoint Partners.
Nuttall says complacency is ultimately offering an opportunity.
“We’re finding the very best opportunities remain in Canada,” he said.
“We are gifted with decades worth of inventory in the oil sands, in the Clearwater, in different places, and we don’t think that equity prices are reflective of where we think oil is either trading now or is going in the years to come.”
He says security of supply for oil and gas has become more important overnight.
“I don’t think anybody ever would have contemplated the world could lose 20 per cent of LNG supply and up to 20 per cent of oil supply, all within 24 hours.”
Roughly one-fifth of the world’s oil consumption moves through the Strait of Hormuz, making it one of the most critical chokepoints in global energy markets, according to the U.S. Energy Information Association.
“This has quickly become the worst-case scenario for energy investors,” said Nuttall.
‘All prior playbooks are not applicable’
Nuttall says the oil market has been preconditioned to sell any geopolitical spike, pointing to the 2019 Saudi refinery attack, which saw prices fall back within days of the initial surge. But this scenario, he argues, is different.
“All prior playbooks are not applicable,” he said, adding that the UAE and Saudi Arabia are now threatening direct military retaliation against Iran following strikes on their sovereign territory.
“So, it’s not just where we sit today, which is unbelievable to any energy observer, it’s where we’re potentially going in the coming hours, days and weeks.”
Buying more Canadian oil stocks
Nuttall said he has been adding more Canadian energy stocks to his portfolio, which may look counterintuitive.
He says the world was very constructive on oil in the second half of last year, U.S. shale production growth has slowed, and he expects The Organization of the Petroleum Exporting Countries (OPEC) spare capacity to be about 1.4 million barrels per day.
“As an energy investor, you never want to have to count on geopolitics for a number of reasons,” said Nuttall.
Canada must build a new pipeline
Last month, Nuttall appeared before the House of Commons Standing Committee on Natural Resources, urging Parliament to approve new oil export pipelines.
“It’s a challenge that we must rise to. A brand new one million barrel per day pipeline is going to take at least eight years,” says Nuttall.
“The world is hurtling into an energy supply crisis before the weekend’s events.”
He says there are projects underway to expand Canadian takeaway capacity by about 700,000 barrels per day, which would require U.S. President Donald Trump’s approval to bring Canadian oil to the Gulf Coast.
“That would be a couple of years of initiative as well,” said Nuttall.
While OPEC controls roughly one-third of the world’s oil supply, the remaining two-thirds from non-OPEC producers is struggling, he said. Nuttall points out that 74 out of 78 non-OPEC countries are in a permanent state of production decline.
“So really it’s the opportunity that Canada has to address this mismatch between demand growth and supply growth,” said Nuttall.
“It’s just a massive, massive opportunity.”
This article was first reported by BNNBloomberg
