How a billionaire investment guru thinks the North American oilpatch can be saved
Investment guru Stephen Jarislowsky agrees with my proposal that the United States and Canada should ban all foreign oil imports to protect our domestic market, and fix prices for the benefit of consumers and producers.
He considers the OPEC price war and subsequent price collapse to be “a declaration of war” against the North American oil industry and believes a deal with the Americans must be negotiated quickly.
“Trump wants to make America great once again and the simplest way of doing that is to save the oil industry by establishing a fixed price and protect the market from everyone else,” said Jarislowsky — the billionaire philanthropist who founded the investment firm Jarislowsky & Fraser — in a telephone interview.
Oil collapsed due to the coronavirus, but OPEC exacerbated the problem by increasing output, in order to drive down prices in a bid to push North American producers out of business.
On April 24, Louis Vachon, the CEO of the National Bank of Canada, criticized OPEC and urged the feds to provide more financial help for Canada’s oilpatch, as well as find a foreign policy solution with the U.S.
Creating an oil perimeter around the two countries, and a fair price, is the only solution, said Jarislowsky.
“Canada can’t do anything alone. … What’s going to happen if prices stay around $30 to $40 a barrel? It will close down the industry.”
U.S. President Donald Trump has threatened to impose tariffs, but OPEC will simply cut prices to hurt or bankrupt our industries again.
This is because OPEC’S cost of production is less than the cost of producing oil from shale or oilsands in North America.
In the U.S., many Republicans, spurred by politically powerful shale oil interests, are pushing for tariffs on Saudi oil, or an outright ban on foreign imports.
Jarislowsky also criticized Prime Minister Justin Trudeau for allowing Quebec to block oil shipments from Western Canada with its pipeline ban.
The result is that billions of dollars have flowed to OPEC members out of Eastern Canada.
“It’s ridiculous that Quebec has no pipelines and isn’t buying Canadian oil,” he said.
“The federal government should not have allowed this. Pipelines are an interprovincial, thus federal, matter. The whole attitude of the Trudeau government with respect to pipelines is nonsense.”
Of course, the government has also struggled to build pipelines to the West Coast.
The Liberals “also have made a mess in British Columbia. Does a government have to listen to every native chief to be happy? What harm does a pipeline do if enough space is left above it or below it for animals to pass over or under? The only requirement should be to make the pipelines function well and remain well maintained,” Jarislowsky said.
“It’s more dangerous to have rail cars, and more expensive. It’s crazy what we’re doing in this country.” South of the border, Jarislowsky blasted Trump for operating “without any facts,” and said his behaviour is why “nobody wanted to do business with him in New York.”
“It’s unbelievable that leaders were not prepared,” he said.
“With known epidemics in different parts of the world, couldn’t we have been prepared with masks and test kits?”
Jarislowsky believes that we will enter a period of deflation, not inflation, as a result of this crisis, due to government stimulus and post-viral attitudes.
“We import everything from China so our wages can’t go up and people who don’t have to work don’t spend a dime. I pay my hydro bill, that’s all. I could give up my office, my housekeeper and could let go of other employees,” he said.
Less spending, and the acceleration of automation and substitution, will reduce employment and economic activity for some time.
Government bailouts are needed, but he described the handouts to big U.S. corporate political donors as nothing more than “corruption.”
There will be no recovery, he said, “until there is a system of testing available to everyone at home, so that people can work and shop and nobody will die. And a vaccine.”