CALGARY — Higher oil prices in the wake of a U.S. air strike in Iraq that killed a top Iranian general drove up share prices for Canadian energy companies Friday and threatened higher fuel prices ahead for consumers.
The Toronto Stock Exchange energy index was up by as much as three per cent in early trading and closed the day ahead by 0.8 per cent.
Meanwhile, the March contract for London-traded Brent crude peaked at US$69.48 per barrel in intraday trading before settling at US$68.59, up US$2.34 or 3.5 per cent.
Several Calgary-based oil firms posted gains on Friday, including MEG Energy Corp., up 4.2 per cent, Canadian Natural Resources Ltd. (0.8 per cent), ARC Resources Ltd. (2.9 per cent), Vermilion Energy Inc. (1.5 per cent) and Tourmaline Oil Corp. (1.9 per cent).
The U.S. attack and Iranian threats of reprisals serve as a reminder that there is a geopolitical risk to oil from the Middle East, financial analysts said.
The events aren’t likely to immediately boost gasoline pump prices for Canadian consumers, but that could happen if tensions remain heightened for an extended period.
“You can’t sit on the sidelines and think that the risk is not really there,” said Phil Skolnick, an analyst with Eight Capital.
“It really is there and now we’ve seen that and that’s why the equities across the board in the energy space are reacting positively … Now the question is: What’s Iran’s next move?”
Any disruption in heavy oil shipments from the Middle East to the U.S. Gulf Coast could increase demand for Canadian heavy oil and support prices, Skolnick said.
Exports from Canada have been constrained by a lack of pipeline space but increased demand could be met by growing crude-by-rail capacity, he said, adding recent wider-than-usual Canada-U.S. oil price differences make that option attractive in terms of profitability for producers.
A drone attack on Saudi Arabian oil facilities in September had a similar short-term affect on the Canadian energy sector and oil prices, but a faster-than-expected recovery meant impacts on consumers and energy companies were minimal.
“We saw US$80 (for Brent crude oil) last time with a relatively brief outage,” said Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets.
“If Iran made a more concerted action to disrupt global production, you’d be looking at prices higher than that, in which case you’d certainly see an even bigger move in Canadian equities.”
Short-term effects in Canada will likely be muted, said CEO Allan Fogwill of the Canadian Energy Research Institute, noting that other OPEC countries and Russia have surplus capacity they can bring on if there are disruptions.
“If the fundamentals change and there’s some kind of escalation of the conflict, that’s a different story,” he added.