(Image via Cathedral Energy Services Ltd.)
Volatility continues with the North American oil industry on both sides of the border, but where there is turmoil, there can also be opportunity.
US Oil prices plunged on Monday to its lowest levels since NYMEX opened oil futures trading nearly 37 years ago. The American oil benchmark, West Texas International crude for May 2020 fell more than 100% to settle at -$37.63 a barrel, which means producers must pay traders to take their oil.
The reason for this drastic tumble is that as the May delivery WTI expires today and as demand for crude slumps while supply surges, storage facilities are bursting at the seams while drivers are staying out of their vehicles. Even with the
agreed cut among OPEC+ and its allies starting in May, the outbreak of COVID-19 has continued to push demand and oil prices lower. Meanwhile, Canada’s heavy oil benchmark Western Canadian Select also fell into negative territory but has since recovered around $6 a barrel.
Market mechanics aside, the changing business environment related to the COVID-19 pandemic and reduced forecasted industry spending has seen a number of companies, specifically those operating in Canada’s oilpatch, announce this week a significant change to their corporate structures, as they adjust to lower oil prices and lower demand.
Cathedral Energy Services Ltd. (TSX: CET), an operator of directional drilling services to US and Canadian oil and natural gas companies will implement
cost cutting initiatives from reducing CEO and EVP salary by 25% and a 22% head count reduction for office and shop staff. Canadian non-field staff will move to a four-day work week with a 20% reduction in salary.
McCoy Global Inc. (TSX: MCB), a provider of equipment and technologies for the oil and gas industry, also
reported similar news on its moves to protect its balance sheet, including an unspecified reduction of employee head count, slashing its budgeted 2020 capital expenditure for production and rental fleet by 80% and cutting salary for board, president and CEO by 25%, and 20% cuts for other executives.
Traders could be in for a bump later this week when the June WTI contract kicks in, which currently sits at $22 a barrel. This could be a good time to shore up bargain investments, or at the very least, fill your gas tank.
This negative price for an oil futures contract has never happened before and companies are working to adjust to falling below their breakeven points. How has this affected your portfolio? Let us know your thoughts in the comments below.
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