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Oil producers prepared for temporary price slump as virus spreads

CAPP says short term jitters but no long-term impact expected on investment decisions.

January 30, 2020   by Mia Rabson

OTTAWA — Canada’s energy industry is not overly alarmed as the new coronavirus coming out of China is taking a bite out of world oil prices.

Oil prices began dropping in mid-January when the first confirmed death from the virus in China was reported. On Jan. 23, investment firm Goldman Sachs warned that demand for oil could drop by 260,000 barrels a day, mostly due to lower demand for jet fuel as the virus slows global travel.

“There are some short-term jitters,” said Brad Herald, a vice-president at the Canadian Association of Petroleum Producers.

But Herald says there are always “geopolitical blips” and companies in Canada have contingency plans that are being “dusted off.”

He said the impact will be felt only while the virus is still spreading. He said it won’t have much of an impact, if any, on long-term investment decisions.

Energy market experts differ on what the overall impact on prices can be. Eric Nuttall, a senior portfolio manager at the Toronto investment firm Ninepoint Partners said in a blog post Tuesday that fear of the virus is playing a bigger role in price drops than actual reductions in demand.

He said when the SARS outbreak hit in 2003, a drop in demand only lasted a few months.

However Richard Price, the global crude oil deputy editor at Independent Commodity Intelligence Services in London, said this week the new coronavirus could hurt oil prices more than SARS did in 2003.

Price said SARS shaved 30 per cent off world oil prices and the impact of this outbreak could be worse, depending on how infectious it is. Price also said air travel in Asia has grown significantly since the SARS outbreak, so any slowdown in flights there will have a bigger impact than it did back then.

Health experts in Canada and overseas were trying to tamp down the epidemic of fear around the virus Wednesday, repeatedly noting it is not proving to be as deadly as the flu, and is not currently known to be spread by patients before they start showing symptoms.

Air travel is slowing around the world as a result of the virus. On Tuesday, Air Canada became the latest airline to cut back on flights to and from China as that country slows domestic and international flights as part of efforts to control the spread of the virus.


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