Alberta Producers With World’s Cheapest Oil Face Cascading Woes

Canada’s biggest energy producers now face the same prospects of shrinking budgets and declining profit as their smaller rivals as prices drop for what’s already the world’s cheapest oil.
Producers including Suncor Energy Inc. (SU) and Canadian Natural Resources Ltd. (CNQ), which each fell the most in at least three years yesterday, operate in one of the most expensive places on earth to produce oil. If crude prices continue sinking following OPEC’s decision not to cut global oil supplies, Canada’s producers big and small will have to tighten their belts to prepare for declining profits.
“This is a pretty big shock,” said Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary. “There’s no question there’s going to be a slowdown. Even the big guys will have to look at their capital spending plans.”
Western Canada Select, the Canadian benchmark, has lost more than a third of its value since June, in step with declines for West Texas Intermediate and the international gauge Brent. WCS traded yesterday at $55.94 a barrel, the lowest in the world.
Investors reacted by sending the 69-company Standard & Poor’s/TSX Composite Index Energy Sector Index down 5.1 percent, the most since August 2011. WTI sank as much as 8.1 percent and Brent fell as much as 8.4 percent after the announcement from the Organization of Petroleum Exporting Countries.


To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

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