El Niño may bring hope to oilpatch

Energy usage, prices rise after phenomenon

To begin, we quoteth the Bard: “Blow, winds, and crack your cheeks! Rage! Blow!/ You cataracts and hurricanoes, spout/ Till you have drench’d our steeples …”

If you’re a Canadian energy executive or a stockholder in an oil company, you might be feeling a bit like Shakespeare’s King Lear in the famous storm scene.

Like the addled king, you’ve been battered and beaten by the elements, undone by the betrayal of others (hello, Organization of the Petroleum Exporting Countries, and your diabolical plot to keep oil prices down), and just in an all-around bad mood.

Like Lear, too, you might be thinking apocalyptic thoughts: With West Texas intermediate falling below $40 US this month, maybe you’re hoping the world will indeed end and put you out of your misery.

Come to think of it, just about any Canadian investor might be feeling the same way right about now.

Is there salvation ahead? Let us look to the skies for a sign.

And what do we see? You guessed it: the Wrath of El Niño. This is, after all, a year when the recurring weather cycle phenomenon is supposed to heat up the Pacific Ocean and ring in a generally warmer winter in North America, albeit with some wacky weather here and there

A recent working paper published by the International Monetary Fund found that El Niño shocks tend to have a positive effect on energy prices.

One reason is that drought in Asia leads to less production from hydroelectric plants and more reliance on energy-intensive irrigation, which boosts demand for oil. The same study also found GDP rises in North America, China and Europe following an El Niño.

One reason: fewer weatherrelated disruptions (East Coast hurricanes, for instance, subside in El Niño years). Another is that consumers (and by “consumers,” I mean Americans) tend to shop more when the weather is warmer. These positive impacts are not insignificant. According to the IMF, Canada enjoys a cumulative GDP boost of 0.85 per cent in the four quarters after El Niño; the U.S. economy gets a 0.55 per cent bump.

That growth, in turn, leads to increased oil demand, driving up prices. The study found that oil prices rise nearly 14 per cent a year after El Niño makes an appearance. Maybe there’s hope for oil after all. Of course, a 14 per cent increase from current prices would still put crude at only about $43 US a barrel.

But hey, any ray of sunshine is welcome right about now, isn’t it?