What happens to gas prices if Saudi Arabia cuts off oil exports to Canada?

Yahoo Finance Canada
FILE PHOTO: General view of Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia May 21, 2018. REUTERS/Ahmed Jadallah/File Photo
FILE PHOTO: General view of Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia May 21, 2018. REUTERS/Ahmed Jadallah/File Photo

Pain at the gas pumps will not be an issue if escalating tensions between Ottawa and Saudi Arabia result in the oil-rich Gulf state halting Canada-bound shipments of its most famous export, according to a leading petroleum industry expert.

Dan McTeague, a senior analyst at the fuel price tracking website GasBuddy, said any such disruption could easily be offset by alternative supply, as Saudi Arabia’s oil continues to represent an increasingly small portion of Canada’s crude imports.

Saudi Arabia’s government said on Sunday that it would “put on hold all new business and investment with Canadaafter a Global Affairs Canada tweet expressed concerns about the arrests of women’s rights activists in the kingdom.

Saudi Arabia has recalled its ambassador to Ottawa and ordered its Canadian envoy to Riyadh to leave within 24 hours, according to a Saudi Foreign Ministry statement.

It is unclear what, if any, implications the move has for existing trade ties between the two countries.

Saudi Arabian crude and equivalents accounted for just nine per cent of Canada’s crude imports in 2016, according to figures from Natural Resources Canada. By contrast, the U.S. accounted for 62 per cent of that figure.

“It’s estimated to be about 100,000 (barrels per day), and that’s down over the past two years,” McTeague said of Saudi Arabia’s oil exports to Canada. “It’s not like it’s an earth shattering number.”

Canada, an oil producer in its own right, brings in barrels from abroad to satisfy the needs of certain regional energy markets. Refineries in Newfoundland and Labrador and New Brunswick rely almost entirely on imported crude.

Canada’s largest refinery in Saint John, N.B., owned by Irving Oil, relies on Saudi Arabia for nearly 40 per cent of its crude supply, according 2018 statistics from the National Energy Board.

McTeague said the risk of Saudi Arabia causing gas prices to rise is minimal — even locally in New Brunswick — given the “very robust market” globally for crude and Irving Oil’s allocation to the U.S. northeast.

“The only people buying oil from Saudi Arabia would be Irving. And of course, Irving sells most of its product into the United States, not Canada,” he said. “There are a lot of spare barrels flying around the world these days. The world has many alternatives in terms of supply, and Saudi Arabia continues to be a smaller proportion of that supply.”

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