Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Warm Weather and Wildfires Assail Canada’s Oil Sands

Unseasonably warm weather in early May resulted in over 100 wildfires that affected oil and natural gas production in Alberta, the heartland of Canada's oil and gas industry. Heatwaves, droughts and wildfires are projected to grow more frequent as the impact of climate change alters existing weather patterns. As temperatures climbed again later in the month, the fires were brought under control, resulting in the continuation of oil and natural gas production. Output from Canada’s oil sands is expected to hit record highs in 2023, but physical asset risk related to climate change may remain a challenge for Canada’s fossil fuel producers.

In early May, prolonged high temperatures exacerbated existing drought conditions in the prairie province of Alberta. With modest spring rains, wildfires caught and quickly spread. As of May 26, there were 51 active wildfires in Alberta, with 14 still out of control. Cooler weather in late May aided firefighting efforts, but wildfires continue to burn.

Alberta is the center of Canada’s oil and natural gas extraction industries due to oil sands, a mixture of sand, water, clay and bitumen. Bitumen is a sticky and highly viscous type of petroleum that requires extensive processing to produce usable oil. According to some estimates, Canadian oil sands represent the fourth-largest proven crude oil reserve in the world. Given the cost of processing, oil sands production is only profitable when oil prices are higher. 

As wildfires have eased, Canadian natural gas production has rebounded. The shut-in of gas processing plants and production in parts of the Montney, Duvernay, Deep Basin and Kaybob geological settings has ended and curtailments in other areas have concluded. Lower production affected natural gas exports to the US and drove up prices in Canada. Prices in the Pacific Northwest and the Rockies in the US also increased due to lower exports. 

The shut-ins also hit oil production, increasing oil prices in Canada. Oil and gas producers NuVista Energy, Baytex Energy, Pembina Pipeline and Vermilion Energy curtailed production or depressurized facilities. Any damage to infrastructure from the fires was minimal, and most companies affected do not expect long-term impairment to output.

On the plus side for the Canadian oil and natural gas industry, S&P Global Commodity Insights announced an upward revision in projected oil sands growth over the next decade. Energy security concerns in 2022 didn’t appear to impact oil sands production, but continued high prices seem to be having their typical effect. While processing oil sands remains intensive compared to other crude oil reserves, optimizations are driving a great deal of the projected growth. The breakeven cost of oil sands production has been declining over time, allowing Canadian producers to compete at a lower price point.

Today is Thursday, June 1, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.


Sub-Saharan Africa's Fading Tailwinds And Missed Opportunities

Sub-Saharan Africa's (SSA) growth will weaken this year before likely rebounding in 2024, albeit with large variations. Sustaining rapid growth will be challenging due to weaker global expansion and a reluctance to invest due to high interest rates. Selected SSA sovereigns will continue to grapple with structural weaknesses. But the end of the pandemic, the reopening of tourism and services sectors, and falling food and fuel prices should support growth and bring some fiscal relief, although S&P Global Ratings sees limited upside for ratings absent relevant structural reforms.

—Read the report from S&P Global Ratings

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Capital Markets

Fla. Litigation Reforms Help Curb Reinsurance Shortage At June 1 Renewals

Legal reforms in Florida aimed at curbing claims litigation prevented reinsurers from pulling more property-catastrophe coverage from the market at the upcoming June 1 renewal season. Primary property carriers in the Sunshine State can still expect double-digit price increases, thanks in no small part to Hurricane Ian, and reinsurers are still treating the market with great caution. But fears of a widespread coverage shortage have abated.

—Read the article from S&P Global Market Intelligence

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Global Trade

Infographic: Russia Drives Global Spike In Dark STS Transfers

Faced with tough Western sanctions, Russia is adapting a tried and tested playbook to conceal the origins of oil cargoes. Crimean waters and Russia's exclusive economic zone have become the preeminent locations for dark ship-to-ship transfers, where ships involved turn off their AIS transponders, leading to heightened trade risks.

—View the full infographic from S&P Global Commodity Insights

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Cutting Carbon Without Changing Course: Net Zero Fixed Income Indices

S&P DJI recently expanded its range of S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices) to go beyond equity to now cover fixed income. Within these indices, the differences between the two asset classes in terms of the balance between cost (tracking error) and reward (sustainability profile) are material and highly thought-provoking. As shown in S&P DJI’s Climate & ESG Index Dashboard, the equity S&P PACT Indices typically have an annualized tracking error ranging from 1.8% to 2.7% versus their market-cap-weighted benchmarks as of March 31, 2023. These levels of tracking error may be challenging for investors who are highly sensitive to any deviations in performance from a standard, market-cap-weighted benchmark.

—Read the article from S&P Dow Jones Indices

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Energy & Commodities

Listen: Europe’s Solar Revival Dream Overshadowed By Harsh New Realities

This episode takes you into the German Solar Valley, which was once the world's largest production hub but was abandoned in the 2010s as China became solar powerhouse Number One. Now, companies like Meyer Burger Technology are ramping up the old factories, gunning for a revival of European production. But, CEO Gunter Erfurt tells the podcast, panels have evolved from commodity to geopolitical poker chip, and Europe risks losing the game without injecting more money into the sector.

—Listen and subscribe to Energy Evolution, a podcast from S&P Global Commodity Insights

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Technology & Media

Fuel For Thought: Auto Safety Systems — Calibration Challenges And Opportunities

With the average age of vehicles on US roads at 12.5 years, new-car shoppers returning to the market may be unfamiliar with some of the advanced driver assistance systems (ADAS) applications now available. And even though many owners of newer cars have driven ADAS-equipped vehicles for several years, they may not have needed a repair or performed a modification that impacted those features or sensors.

—Read the article from S&P Global Mobility

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