Looking for investment opportunities amidst the crisis, a glance at Canadian oil. The result, backed up quickly.
Suncor (NYSE: SU) reported a break even cost for $28 / barrel for Western Canadian Select (WCS), while Canadian Natural Resources (NYSE: CNQ) reported $21 / barrel.
WCS is presently trading around $10 / barrel.
When global oil inventories are between 55 to 65 days, we see WCS float between 20 to 40 dollars, with the odd spike and plummet.
At present (nearly 85 days of supply) we may not return to this level until 2021 (depending on how dedicated OPEC+ is about following through on recent agreed upon production cuts – though 9.4 M barrels / day cut vs a 30 M barrels / day (est) overhang does not inspire optimism). On top of that, Alberta will likely need to engage in heavy curtailment of production to prop up the price of WCS to break even and even then it might not be enough if the crisis continues to pull down consumption. I don’t think it would be far fetched to assume that the collateral damage will spread far throughout the provincial economy.
And to add fuel to the fire – this was reported back before the crisis:
“The index also showed 28 per cent of Albertans said they were already unable to meet all their monthly financial obligations.
That rose to 47 per cent when factoring in those who say they are $200 or less away from being insolvent at month’s end.”
I would hazard to say some difficult times lie ahead. I hope I am wrong.