It’s All One Trade: TBL Weekly #126

Alberta Premier Danielle Smith challenged Mark Carney to strike a better deal for her oil-rich province, saying she would not allow the “status quo” to prevail in its relationship with the federal government.

While congratulating the Liberal prime minister on his election victory, Smith said a large number of Albertans are deeply frustrated that a government that “overtly attacked” her province’s economy has been returned to power. 

“I invite the prime minister to immediately commence working with our government to reset the relationship between Ottawa and Alberta with meaningful action rather than hollow rhetoric,” she said in a statement.

“Albertans are proud Canadians that want this nation to be strong, prosperous and united, but we will no longer tolerate having our industries threatened and our resources landlocked by Ottawa.”

Alberta has been in conflict with Canada’s Liberal government since Carney’s predecessor, Justin Trudeau, was elected in 2015 and began rolling out environmental policies, including an emissions cap, new pipeline regulations and a ban on tankers off the northern British Columbia coast. Smith says those measures encroach on the province’s jurisdiction and hamper oil and gas development. 

The growing hostility has prompted some Albertans to call for greater autonomy from the federal government, and even fueled a small but simmering secession movement. 

The Alberta government will hold a caucus meeting on Friday to discuss the province’s future within a united Canada, Smith said. 

‘Pivotal Moment’

Carney said in his victory speech early Tuesday that he intends to govern for all Canadians. He has pledged to turn the country into a “superpower” in both clean and conventional energy, and said it needs to produce more oil while reducing the associated emissions.

“My optimistic view is a Carney win is status quo for a sector that’s dealt with significant challenges over the past 10 years,” Eric Nuttall, senior portfolio manager at Ninepoint Partners in Toronto, said on BNN Bloomberg Television. 

He said Carney’s apparent reluctance to repeal the environmental assessment law known as Bill C-69 means “no oil pipelines.” 

“So for our Canadian energy sector, at least in the oil sector, they’ll be required to remain as disciplined in returning that free cash flow back to shareholders in the form of share buybacks because there will be nothing left to do with it.”

Lisa Baiton, chief executive officer of the Canadian Association of Petroleum Producers, said she was encouraged by the tone set by the two leading parties throughout the election campaign on the importance of oil and gas to the country’s economy.

“Canada stands at a pivotal moment in its history — caught in a trade war with our closest trading partner and facing direct challenges to our sovereignty from the president of the United States,” she said in a statement. 

“Developing our world-class oil and natural gas resources to their full potential by growing our exports to international markets will strengthen our energy security and economic sovereignty.”

Oil settled below $60 a barrel for the first time in three weeks as signs emerged that the Saudi-led OPEC+ alliance may be entering a prolonged period of higher production.

West Texas Intermediate fell as much as 4.2% on Wednesday after Reuters reported that Saudi Arabian officials have been telling allies and industry experts that the kingdom can endure a sustained period of depressed prices. The most-active contract capped its biggest monthly decline since November 2021.

The report added to existing concerns that Saudi Arabia planned to steer OPEC+ to agree on another supply surge next week.

“This confirms the market’s fears that Saudi Arabia’s accelerated unwinds were not temporary, but a long-term strategy shift,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. It raises the question of whether “Saudi is going to repeat the 2020 playbook to dramatically increase production.”

OPEC+ rocked the crude market in early April, with a surprise decision to increase supply in May by 411,000 barrels a day, the equivalent of three monthly tranches from a previous plan. Morgan Stanley has said it expects a “meaningful surplus” to develop over time, while JPMorgan Chase & Co. warned the cartel may accelerate planned production increases at a meeting next week.

Beyond OPEC+, non-cartel nations are also expected to add supplies, including drillers in Canada and Guyana, feeding concerns about a global glut.

At the same time, hopes are fading that there will be quick breakthroughs in US-led trade negotiations, weighing on the outlook for energy demand. The US economy contracted for the first time since 2022 in the first quarter as a result of a surge in pre-tariff imports and softer consumer spending. In China, factory activity slipped into the worst contraction since December 2023, revealing early damage from the trade war.

Trump said in remarks to ABC News that China deserved the steep tariffs he’d imposed on their exports. Hee said later Wednesday that he didn’t want China’s products unless the country is fair.

Oil Prices:

WTI for June delivery fell 3.7% to $58.21 a barrel in New York.
Brent for June settlement, which expires on Wednesday, shed 1.8% to $63.12 a barrel.

The more-active July contract dropped 3.5% to $61.06 a barrel.