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Thursday, August 11, 2022

Oil up 2 percent as wildfires threaten Canada supply, Saudi moves eyed

By Barani Krishnan

NEW YORK (Reuters) – Oil prices rose about 2 percent in early Asian trading on Monday as supply outages persisted over the weekend from Canada’s wildfires that have shut half the country’s vast oil sands capacity.

Analysts were also digesting weekend news of Saudi Arabia’s appointment of a new energy minister to take over from veteran oil minister Ali al-Naimi. The new appointee, Khalid al-Falih, is a believer in reform and low oil prices.

Falih said on Sunday that the world’s largest crude exporter was committed to meeting demand and would maintain its stable petroleum policies.

U.S. crude’s West Texas Intermediate futures were up $ 1.05, or 2.3 percent, at $ 45.71 a barrel by 7:17 p.m. EDT (2317 GMT) in New York on Sunday. The session high in Singapore trading was $ 45.94.

Brent crude futures rose 85 cents, or 1.9 percent, to $ 46.22 a barrel, after peaking at $ 46.48.

“I think the wildfire is going to have a major impact as Canada exports some 3.5 million barrels per day of crude to the U.S.,” said Carl Larry, director of business development for oil and gas at Frost & Sullivan.

“I’m not sure if we’ll get back to $ 80 a barrel, but $ 50 and above looks likely,” he said.

Crude prices have rebounded about 75 percent since hitting 12-year lows of around $ 27 a barrel or lower in the first quarter, supported by falling U.S. production, unexpected supply constraints in Libya – among others – and a weaker dollar.

World oil supply remains in a glut, however, with an estimated oversupply of around 1.5 million bpd.

On Sunday, cooler weather, light rain and winds opposed to the direction of flames helped control the advance of the blaze that razed Alberta’s oil sands boomtown Fort McMurray.

Yet, energy firms such as Statoil and Husky Statoil shut their facilities in the area as a precaution.

Eleven production firms and three pipeline operators that have curbed activities after the week-long inferno forced more than 1 million barrels in capacity offline.

Officials said the fire had also done minor damage at CNOOC unit Nexen’s Long Lake facility, in the site’s yard. It was the first reported damage to an energy industry asset since the crisis began.

Three major oil firms – BP, Suncor and Phillips 66 – have warned they will not be able to deliver on some contracts for Canadian crude.

While Falih’s appointment as energy minister could be bearish to oil in the longer term given the Saudis’ increasing reluctance to use market intervention to boost prices, traders said the market was unlikely to sell off without further proof of his actions.

“Between the Canadian wildfire and the regime change in Saudi Arabia, there is a pronounced amount of uncertainty now,” said John Kilduff, partner at New York energy firm Again Capital. “In commodities, you buy uncertainty.”

(Additional reporting by Karolin Schaps in London, editing by G Crosse)

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