How Oil Traders Gave Albertan Consumers and the Financial Community a Wild Ride
Canadian industry realities taught investors a hard lesson since the big bull market in commodities in general, and energy in particular, took off five years ago.
“Incredible has been the sentiment shift in the crude oil markets in less than 30 days,” FirstEnergy Capital Corp. declared in a research note during one of the descents.
“When everyone appeared to be reaching an explosive frenzy as we entered the second half of this year, crude oil prices seemed to have heard the din and promptly lost US$25 per barrel from the all-time peak settlement of $145.29 reached on July 3.”
But industry captains kept their feet on the ground. Project planners and builders stayed off the roller-coaster ridden by brokers and speculators in paper-barrel trading on commodity-futures exchanges.
Caution prevailed in investor presentations by owners of large developments from Calgary’s Canadian Natural Resources Ltd. to Houston-based Marathon Oil Corp.
Rather than take chances of raising false expectations, companies stayed in a forecasting comfort zone. Price assumptions in corporate financial projections were held down to half the summer heights or less.
The caution came naturally. It was not all due to old habits of conservatism or questions raised by Washington investigations into the role of speculators in turning oil into a financial asset dubbed “the new gold” as a substitute for old mainstays on world money markets.
Canadian industry realities taught investors a hard lesson since the big bull market in commodities in general, and energy in particular, took off five years ago.
The extent of the climb has been to a significant degree in the eyes of its beholders. There is much more to the results of producing tangible, physical energy commodities than the headline prices on futures traders’ financial derivative contracts representing international benchmark grades.
Parallel currency exchange rate movements alone, and entirely apart from cost inflation and labor shortages, made the commodity bull market tamer for Canadian producers than their counterparts in the United States. Differences in national perspectives – and reminders of why Canadian industry captains feel vulnerable to being torpedoed by financial movements beyond their ability to control – show in records kept by Alberta technical information mainstays such as GLJ Petroleum Consultants.
When energy prices began their long ride up in 2003, the annual average value of the loonie was US$0.72. The Canadian dollar climbed – or its American counterpart dropped, depending on who was counting – 30 per cent to an average US$0.94 in 2007.
The net effect was a deep cut in the Canadian value of gains by oil that continued to be priced around the world in U.S. dollars. The petroleum industry was no less affected by the currency trend than Canada’s more famously undermined manufacturing sector.
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