Canada’s oil sector to benefit from elevated prices

07 July 2021 Consulting.ca 2 min. read
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Canada’s oil sector will benefit from higher demand and elevated prices as the global economy gets back on track, according to analysis from Deloitte Canada.

Oil prices are expected to remain at their recent higher levels as demand for North American crude increases this summer, according to the consulting firm’s quarterly oil, gas & chemicals price forecast.

“Canadian producers are benefitting from higher demand for crude oil feedstock, driven by significant growth in the U.S. and Canadian economies as vaccination rates have soared, leading to higher consumer spending and the beginning of a return to a pre-pandemic life,” said Andrew Botterill, national oil & gas leader at Deloitte Canada. “Supplies should keep pace with this increased demand, which means crude prices should remain relatively stable despite Canadian and international producers boosting their output.”

West Texas Intermediate (WTI) prices averaged US$65.24 per barrel in May – approximately 13% higher than the average price in the first quarter of 2021. Crude prices were spurred on by higher demand due to a resurgence of service industries, including transportation.

Crude oil price and market demand forecast

Deloitte expects crude oil prices to hover at recent values over the summer as countries continue to lift pandemic restrictions and OPEX+ countries gradually increase production levels. The International Energy Agency projects Canadian production levels will increase to a record high in the second half of 2021.

Despite higher prices, Deloitte says companies will practice capital investment restraint, with development activity not likely to outpace 2019 levels. “Rather than rapidly deploying cash flow, they’re paying down debt and maintaining flexibility for future investments, including those associated with decarbonization and energy transition efforts,” the report noted.

According to Deloitte, capital spending increased in Q1 2021 by almost 30% from lows registered in Q2 2020. However, the firm says this upward trend is shallow, and significant capital isn’t required to achieve the flat production levels oil companies are targeting.

The report notes that the oil price rebound could lead to short-term investment, but future investment will remain constrained as governments act to reduce carbon emissions and investment decisions – especially from institutional investors – increasingly incorporate ESG metrics.

In Canada, the federal government has announced carbon prices will rise to $175 per tonne by 2030 to help reach Paris Accord carbon emissions reductions. Meanwhile, pipelines remain contentious, with the US government recently canceling the Keystone XL pipeline.