Oil prices will remain flat for foreseeable future, Deloitte forecasts
WTI price likely to stay in $45 to $60 range for next 3 years, report says
Higher production in the U.S. and Canada has largely offset cuts made by OPEC, meaning oil prices won't increase significantly anytime soon, according to the latest forecast from Deloitte released Wednesday.
The report says cuts to production by the Organization of Petroleum Exporting Countries (OPEC) removed about 1.8 million barrels of oil a day from the market, which helped to keep prices around $50 US a barrel for most of the last quarter.
Oil prices also dropped to a six-month low in June thanks to reports of increased gasoline stockpiles and lower-than-expected demand going into the summer driving season.
"I think this is just a sign of the volatility we're going to continue to see," said Andrew Botterill, a partner with Deloitte.
"Our price forecast sits a little lower than it did three months ago but ultimately, I think all of industry was expecting this type of volatility to take shape and we expect to see more of that in the coming year."
The latest Deloitte forecast for West Texas Intermediate in 2017 is $48 US per barrel and $59 Canadian per barrel for Edmonton Light.
Botterill says he expects the WTI price will likely stay in the $45 to $60 range for the next three years.
"What we're finding is the producers are able to bring and drill new wells very efficiently, so I think what we're going to see is companies being very efficient with where they spend their capital, and also at the same point in time, being very careful they're not over-extending themselves into big debt situations."
Natural gas prices are also expected to remain stable with North American supply and demand relatively unchanged and storage levels about the five-year average.
"The story for natural gas is that Canadian producers are offset significantly to natural gas prices in the U.S., just because the U.S. has so many resources they're able to bring on, so we're scrapping and competing to get our volumes, but ultimately there's some extremely economic plays and developments that are going in Canada."
CAPP proposes plan to generate 24,000 jobs
The Canadian Association of Petroleum Producers (CAPP) also released a report Wednesday on the future of Alberta's energy sector.
If Alberta worked with industry to enhance the competitiveness of the oil and gas sector, the provincial economy could get a $5-billlion boost with 24,000 new jobs over the next three years, according to CAPP's analysis, titled A Competitive Policy and Regulatory Framework for Alberta's Upstream Oil and Natural Gas Industry.
Recent changes in provincial and federal policies — including regulations on methane emissions, carbon pricing, tax hikes and wildlife protection measures — have burdened the oil and gas industry with new costs and barriers to growth, according to CAPP.
At the same time, U.S. policy makers have taken steps to actively encourage oil and gas capital investment by reducing regulatory burdens, CAPP says.
"Low global commodity prices, rapidly changing market dynamics, and new policy directions in the United States have led to negative impacts on oil and natural gas investment and competitiveness in Canada," the association said in a release.
Capital spending in Canada is forecast to be $44 billion in 2017, down 46 per cent from $81 billion in 2014. Spending in the U.S. is expected to rise 38 per cent to $120 billion in 2016, CAPP said.
To address the growing investment gap and help come to terms with the "new normal" of lower oil prices, the CAPP report says Alberta should create a new "Sustainable Prosperity Steering Committee."
"What we're asking for today is more urgency. We don't think the current path we're on will get us to the paths that would be acceptable to the people that work for our industry or Albertans in general. And we'd like to work with governments to find ways to reposition us," CAPP president Tim McMillan said.
The committee would enable industry and government to work together "to find solutions that bring back investment, enhance competitiveness and regulatory timelines, address uncertainty caused by federal initiatives and ultimately create jobs for Albertans," the report says.
While the CAPP report has praise for the Alberta government's approach to the royalty regime and its efforts to get new pipelines approved, it argues that new dynamics will force the province to work harder to compete with U.S. producers in existing markets and gain access to new ones.
"Alberta does not need to simply echo the U.S. approach to competitiveness," the report said.
"The opportunity is to work together on a made-in-Alberta competitiveness plan that allows our oil and natural gas industry to compete in a changing world dynamic while maintaining world-class environmental and regulatory standards."
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With files from Dave Gilson