Oil prices expected to cool off as OPEC boosts production
After surging in the first quarter of 2021, crude oil prices are expected to ease off in the coming months as boosted production meets demand, according to a recent oil price forecast from Deloitte Canada.
With growing demand from improved economic activity, oil prices jumped in the first quarter. OPEC also announced continued production cuts through to April, which helped Brent and West Texas Intermediate (WTI) prices increase 22% and 24% respectively in March 2021 from December 2020 values.
“Demand for oil outpaced supply in the first part of this year, driving up the benchmark price of Brentwood and WTI crude by about a quarter, but producers are now beginning to close that gap, putting downward pressure on prices,” said Andrew Botterill, national oil & gas leader at Deloitte Canada.
The oil price rally isn’t sustainable, according to Deloitte, because OPEC currently has a significant amount of production offline. The consulting firm expects OPEC to increase production in the coming months – pushing prices below US$60 per barrel and preventing US oil companies from substantially recovering market share.
Another factor is that the freeze-out in Texas temporarily shuttered refining operations in the Gulf of Mexico. Excess storage coming back on the market in the next number of months will also work to depress prices.
Deloitte projects an average Brent price of US$62 per barrel and an average WTI price of US$58 in 2021. Edmonton par prices are expected to be an average of $67.15 in 2021.
But wait, there’s a Canadian connection
Canadian oil producers fared well in the first quarter, with production rebounding to pre-pandemic levels. Drilling activity increased to take advantage of higher prices, with production rising 3.6% year-over-year in January 2021 to reach 116 MMbbl.
Meanwhile, the Keystone XL permit cancellation means that current pipeline export capacity has reached its limit of approximately 3.6 million barrels per day. However, rail can add about 400,000 barrels per day.
The expected completion of the Line 3 and Trans Mountain expansions in the next two years would boost total export capacity to 4.5 million barrels.
