Deloitte forecasts continued energy price volatility
Deloitte Canada’s most recent oil and gas forecast (released Dec. 31) expects continued volatility for crude oil and natural gas prices throughout the winter.
The primary factors driving price volatility are geopolitical uncertainty (i.e. the Russia-Ukraine war) and concerns about a possible recession and further interest rate increases.
“We expect natural gas producers will continue to align their production to demand and be careful about additional development,” said Andrew Botterill, leader of the oil, gas & chemicals practice at Deloitte Canada. “Weather and storage levels will still be major influences on gas prices, which we do not see reaching elevated levels for long, if at all.”
Natural gas prices swung wildly in 2022, with Henry Hub starting the year under US$4/mmbtu, rising sharply to nearly US$10/mmbtu during the summer, then settling back to between US$5-$6/mmbtu by the fall. In Canada, natural gas dropped from just under $9/mmbtu in the spring to negative territory in the fall during pipeline maintenance periods, before recovering to between $5-7/mmbtu in the latter part of the year.
Deloitte expects crude oil prices to remain as volatile in Q1 23 as in 2022. Though crude prices have generally declined since a summer 2022 peak, China’s move away from its zero-Covid policy caused crude prices to rise at the beginning of December.
“The added anxiety of a cold winter in full swing could extend the ongoing volatility,” said Botterill. “Russia’s invasion of Ukraine was the principal driver of in 2022, but so too was China’s attempt to control the spread of COVID-19 by locking down whole cities and regions, reducing its economic activity and driving down its demand for energy supplies.”
Deloitte projects an average 2023 price of $74.30 per barrel of Western Canada Select (WCS) – the price obtained by many Alberta oil producers – down from an average of $96.80 in 2022. Deloitte projects an average West Texas Intermediate price of US$80.00 per barrel in 2023, down from an average of US$94.41 in 2022.
In a companion analysis, Deloitte sees little relief in sight for high energy costs – which drive inflation and risk for supply chains, investment, and jobs.
