Canada Vows Response to Crude-Oil Blow

Canadian officials vowed Monday to do whatever it takes to support its resource-reliant economy in the face of a crushing blow from sharply lower energy prices, which threaten to further roil an economy already under pressure from the coronavirus epidemic.

Canadian Finance Minister Bill Morneau said he would start rolling out fiscal measures this week, because uncertainty and financial-market volatility could further erode consumer and business confidence. The price of crude oil, which happens to be Canada’s largest export, recorded its biggest one-day drop in nearly three decades on fears that a price row between Saudia Arabia and Russia would lead to a glut on the energy market.

“We are making sure we tell people, ‘We have their backs,’ ” Mr. Morneau told reporters, adding that fiscal measures under consideration would help both employees and employers. “We will respond to challenges as challenges arise.”

The premier of Canada’s energy-rich province, Alberta, weighed in as well, warning the crude-price plunge and the economic impact from the coronavirus epidemic put the country in “uncharted territory” that required a swift and meaningful response.

“Everything is on the table,” Premier Jason Kenney told reporters in Calgary, Alberta. The country’s energy sector, which is largely based in Alberta, has been mired in a multiyear slump, punished by a collapse in prices as supply from the booming U.S. shale industry has crowded out Canada’s brand of heavy crude.

“The challenge posed to this province and to Canada could not be more serious,” Mr. Kenney said.

Although analysts say the U.S. shale oil industry could suffer the most from the Saudi move, Canada’s economy is also exposed to the crude-price swoon. Besides crude oil being Canada’s top export, the energy sector accounts for, directly and indirectly, more than 10% of the country’s gross domestic product.

Should energy prices remain at depressed levels, “and signs suggest it will, this will be clear-cut negative for the Canadian dollar, economic growth, inflation and interest rates,” said Doug Porter, chief economist at BMO Capital Markets.

Commodity prices had already dropped sharply prior to this weekend’s move by Saudia Arabia to cut the price of its oil. The Bank of Canada cut its main interest rate last week by a half-percentage point, citing the risk of a prolonged economic slowdown caused by the coronavirus outbreak. Bank of Canada Governor Stephen Poloz said the stresses caused by the drop in commodity prices would “inevitably” filter into other parts of the economy.

Canadian energy companies suffered steep stock-price declines on Monday in Toronto, as investors sold on the expectation producers would lose money on falling oil prices. It is generally expensive to pull crude out of Canada’s oil sands, and companies have less margin to absorb low prices for oil barrels than U.S. producers have.

Western Canadian Select oil fell 33.75% on Monday, to $18.88 a barrel, compared with $31.63 for a barrel of U.S. West Texas Intermediate crude, according to S&P Global Platts. The drop pushed down stock prices for Canadian companies such as Ovintiv Inc., which fell more than 72%, Cenovus Energy Inc., which dropped almost 52%, and MEG Energy Corp., which tumbled almost 56%.

The drop in crude-oil prices will reverberate quickly through Canada’s energy patch, said Jackie Forrest, senior director with the ARC Energy Research Institute. She said oil companies had to reduce production in 2018, when prices fell to similar levels, and a protracted decline could lead to job cuts for the companies that provide equipment and other services to the producers.

“There’s going to be a lot of pain,” she said.

Calgary-based Cenovus said in a statement that it expected the latest oil price drop to be temporary, but was “looking for additional opportunities to streamline our spending” after having almost cut operating costs by 40% since 2014.