As Investors Warn of Cheaper Oil, a Weakening Loonie Keeps Alberta Flush

Canadian Loonie

By Sam Eifling

February 6, 2014

The prospect of cheap oil running into the market from the likes of Iran, Mexico and American shale has a Canadian hedge-fund mogul pouring eight figures into renewable energy investments. But a softening loonie could help steady any drop in oil sands production.

Canadian Business reports that Leo de Bever, the CEO of Alberta Investment Management Co., has pledged to put a $100 million bet on emerging energy tech on the possibility of oil prices tumbling down to $70 a barrel. Such a price would be among the lowest of the past decade, and could clobber the energy-intensive mining operations in the Canadian oil sands if it were to persist.

The magazine rebutted de Bever's forecast diplomatically, saying "some in the oil patch were quick to dismiss his prediction that oil prices would slide." And with some $70 billion under his management, a $100 million investment is hardly going all-in.

Still, such a large bet on a post-oil future arriving sooner than later is enough to draw some attention. Even a dip would tilt capital on a massive scale.

William Browder, manager of Hermitage Capital Management, told a Telegraph reporter at Davos that $60-a-barrel oil could be coming — and that at such a price, Vladimir Putin "will be gone within a year." The Telegraph's Ambrose Evans-Pritchard further surmised:

Both Deutsche Bank and Bank of America have warned of a potential glut in oil this year as sanctions against Iran are phased out and Libya's exports revive. The US is expected to add more than 1m barrels per day (b/d) this year. The Saudis may choose not to stabilise the market by cutting output, deliberately letting crude slide below the marginal cost of production of shale.

If the world can return to an era of cheap(er) oil, Canada's expensive and carbon-intensive oil sands crude could prove to be a relic of a post-Iraq War decade. Until then, though, the weakening loonie means a healthy windfall to Alberta's coffers. The Calgary Herald reports that for every penny the loonie loses against the American dollar, Alberta reaps $170 million over its budget projections. With the loonie down 3 cents from last spring's projection, the province is eyeing an extra half-billion dollars. Every bit girds the oil sands' viability in case the cheap-oil projections come to pass.