While Canadian airlines cancel flights and struggle with soaring fuel costs, profit margins for oilpatch refiners are taking off. Analysts report a sharp turnaround in demand for Canadian barrels, driven by the ongoing Iran war oil shock that has disrupted global supply chains.
Jet Fuel Margins Surge
The crisis has pushed jet fuel margins to levels not seen since Hurricanes Katrina and Rita in 2005, which knocked out nearly a quarter of U.S. refining capacity. For Canadian and North American refineries, the impact has been profound, with prices skyrocketing amid a growing shortfall in crude supply from the Middle East.
Stark Divide in the Economy
Soaring oil and fuel prices are creating a stark divide within the Canadian economy. The oilpatch is bracing for a first-quarter profit windfall, even as fuel-sensitive sectors like aviation scramble to contain rising costs. Airlines are scaling back or scrapping flights altogether and raising fares to cope with the price surge.
Canada may be the world's fourth-largest oil producer, but this does not protect the country from price shocks in refined fuels, according to Carol Montreuil, vice-president for Eastern Canada at the Canadian Fuels Association. “We’re not immune to these price shocks because of how these markets are all interconnected,” Montreuil said. “Markets try to find an equilibrium. It’s a question of supply and demand, with everyone trying at the same time to find supply and outbid each other to get their hands on those products.”
Physical Shortages Not Yet a Concern
So far, physical fuel shortages are not a major concern for Canada, unlike in parts of Europe where the International Energy Agency has warned that several countries could run out of jet fuel in as few as six weeks. Canada, while a net exporter of refined petroleum products overall, still relies on imports of fuels like gasoline, jet fuel, and diesel to fully meet domestic demand, with the vast majority coming from the United States.
“It’s never been an issue before, given how closely linked the two countries are,” Montreuil said. “But if there was a product for which the balance is more delicate, jet fuel would probably be the one to keep an eye on. If this crisis goes on for months and months, I think it will become real for everyone on the planet.”
Canadian Producers Benefit
For now, Canada’s energy sector is emerging as a key beneficiary of the crisis that has choked off energy supplies from the Middle East. As global supply losses mount and tanker traffic remains constrained through the Strait of Hormuz—the most critical shipping lane for Persian Gulf exports—analysts say demand for Canadian barrels is rising, marking a sharp turnaround from earlier in the year.
“Canadian producers are doing incredibly well out of this whole Mideast situation,” said John Cordner, market reporter with commodity pricing agency Argus Media. Unlike some of their global peers with operations in the Middle East, Canadian producers are “seeing all the benefits from the price rises without actually having their flows disrupted.”
Oilpatch spending plans and earnings forecasts issued just a couple of months ago—based on prices averaging US$60 to US$65 per barrel—have been torn up. In Western Canada, analysts say oilfield service companies are being asked to move rigs and fracking crews onto sites earlier than originally scheduled, as activity in the sector picks up.
