Asset allocation strategist surveys oil prices and what that means for the sector
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US sanctions on Iran may prove beneficial to Canada in relation to both oil and NAFTA negotiations, according to an industry insider.
Jeff Weniger, asset allocation strategist at Wisdom Tree Asset Management, believes the market had anticipated the impact of the political turmoil, with investors seeing the climb as a chance to take some profit in the wake of crude hitting a three-year high. Brent prices were around $77 yesterday.
Weniger also said that the Iran and Venezuela situation could lead the US to cast more friendly eyes towards their northern neighbours, especially with Western Canada Select around $53 a barrel.
He said: “With heightened tensions [with Iran], this would seemingly be cause for the Americans to open their arms and embrace Canadians a little bit more.
“For those of who have been doing business both sides of the border for so long, the Americans like to go around and say we have this special relationship with the UK, and so on and so forth but there’s that very long unguarded border with their friendly neighbour to the north that is just brimming with oil and has no designs on nuclear technology!”
He said that the $20+ price difference between Brent and Western Canada Select could also prompt better relations with the US on the pipeline issue and maybe “that arbitrage between Canada oil and what Americans are actually paying for it”.
Weniger said: “Oil is something that loses elections – maybe you turn up at the NAFTA table and take a step back and think, maybe we’ll be a little nicer to these Canadians; they have what we need.”
Politically, and for the Canadian corporate energy sector, this increase in demand and possibly price will help Ottawa more than Washington DC, although Weniger said the pain for the everyday person over price has been offset somewhat over the years by inflation, better fuel efficiency and declining auto usage.
However, he said that investors may have to alter their mindset over crude prices going forward.
He said: “If an investor is looking to rotate into some sort of defensive posturing on account of some thesis that has a crushing blow to consumer confidence or consumer demand because of some sort of anchoring to X dollars on crude oil – in this case Brent crude oil in the mid-70s - they need to now mentally re-anchor to some higher level in order to break those backs.”
He added: “For most people, the oil price hurts them. In terms of real ramifications for a real pinch on the oil prices, it would be better news for Ottawa than DC but I would point out that we’ve been compounding a couple of per cent inflation for a dozen years. In the US, everything is up by the gallon [and] $2 a gallon is not the same as $2 a gallon when I was a young adult. Now I’m pushing 40 and $3 a gallon, no matter what’s happened to my personal income, is just not the same.”
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Why 'America first' NAFTA talks will hurt Canada
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