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Varcoe: 'All hat and no cattle': Canada has big reserves, but can't get much more oil to strained global markets today

Canada doesn't have a strategic petroleum reserve — like the United States — and still imports foreign oil into parts of Eastern Canada

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U.S. President Donald Trump has been trying to talk down oil prices during a war in the Middle East.

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Federal Natural Resources Minister Tim Hodgson is trying to talk up increasing Canadian oil production to help strained global markets.

It may sound like a grand idea, but I don’t think anyone is buying in — at least, not until the clogged Strait of Hormuz is fully reopened and, domestically, Canada bolsters its export capabilities for oil.

“It’s nauseating to read a response like that. Our ability to respond is exactly zero,” said Eric Nuttall, senior portfolio manager with Ninepoint Partners, which invests in Canadian energy producers.

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“All hat and no cattle.”

There’s not much Canada can do in the immediate term to supply additional oil to the world, as the country doesn’t have a strategic petroleum reserve — like the United States — and still imports foreign crude into parts of Eastern Canada, noted former Alberta premier Jason Kenney.

“We can’t contribute to the immediate price crisis, but we can help to stabilize global energy markets for the long term, if we finally get cracking” on needed policy changes, Kenney said Friday in an interview.

“As one of the energy richest countries on Earth, policy has not aligned with that fact . . . Realistically, there is nothing Canada can do to move the dial on increased shipments.”

Global oil prices continued to climb this week, as the war in the Middle East intensified and Iran stepped up its attacks on oil tankers in the Persian Gulf.

The price of West Texas Intermediate (WTI) crude edged up Friday by nearly $3 to end the day at US$98.71 per barrel.

It’s noteworthy that prices on Thursday jumped more than $8 a barrel, just one day after the International Energy Agency announced its 32 member countries had agreed to release of 400 million barrels of crude in an effort to stabilize energy markets.

On Friday, the federal government said Canada would support the IEA’s plan with the industry producing 23.6 million barrels of oil for export — likely over the next three to six months — and co-ordinated with the federal and provincial governments.

The output is largely what was already planned by industry, not additional, extraordinary production — although it meets what the IEA was looking for Canada to pump out, according to federal officials.

Meanwhile, exports of oil and refined products through the Strait of Hormuz — more than 20 million bpd moved through the waterway before the war — have fallen sharply this month.

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“The reality is, we’ve got one of the single-largest oil choke points in the world that’s been choked,” said Kevin Birn, Canadian oil markets chief analyst with S&P Global Commodity Insights.

A report by S&P this week said it would take months for the IEA’s release of 400 million barrels to match the 430 million barrels of global supplies that will be lost in just March.

The impact to oil markets is becoming more obvious as the conflict drags on, despite Trump saying earlier this week that “prices are coming down very substantially. Oil will be coming down.”

“He has, to some extent, used the power of the presidency to keep prices low — until now,” said Heather Exner-Pirot, director of natural resources, energy and environment at the Macdonald-Laurier Institute.

“This is a different beast. This is a real physical supply disruption.”

And the release of barrels from IEA countries is not a long-term fix, caution analysts.

“That’s a huge amount of supply, but it’s still a paltry sum relative to the volume lost in Hormuz,” said Rory Johnston, founder of the Commodity Context newsletter.

“It is a drop in the bucket and, fundamentally, it’s only temporary.“

However, Hodgson told reporters this week that Canada will help stabilize global oil markets and said the government was talking with the industry on how it can contribute. He suggested Canadian producers could postpone scheduled downtime, as facilities often undergo maintenance work in the spring.

“We’re producing at capacity right now. We’re doing our part in the world. But we can do more,” he said.

The sentiment is sound.

But realistically, how much can Canada help without building more export terminals and pipelines to deliver substantial increases in volumes?

New production takes time to bring on stream. Space on export pipelines is running near full.

“Nothing we do in the short term is going to be meaningful,” said Exner-Pirot.

“These comments about what Canada can do seem like window-dressing around kind of the truth, which is, Canada is already doing most of what it can,” said Johnston.

The last time oil prices jumped above $100 a barrel following Russia’s invasion of Ukraine in 2022, the Trudeau government pledged Canada would boost output by 300,000 barrels of oil equivalent per day.

But that “meant precisely nothing, in terms of action,” by Ottawa, said Kenney, who is a director on the board of Postmedia Network.

“We were limited by egress,” added Sonya Savage, Alberta’s energy minister at the time.

“It’s no different today. We can only help the global crisis and the global problem based on how much oil we can get to market.”

The Alberta government and the oilpatch have been pushing to see more export pipelines built. Trans Mountain Corp. and Enbridge are advancing plans to optimize capacity on their systems.

Most of these initiatives will take years — not weeks or months — to complete.

“There has been, over this past year, a pivot toward policy pragmatism . . . but we’ve still got to get shovels in the ground,” Lisa Baiton, CEO of the Canadian Association of Petroleum Producers, said Thursday.

“Production is going to be based on private sector sentiment,” added Tristan Goodman, head of the Explorers and Producers Association of Canada.

“Will producers look at the price and look for opportunities? Yes, of course they will. But the price signal right now is not stable enough to make a substantive sort of change.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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