Deloitte Canada expects volatile oil and gas prices to continue for several years
Sanctions against Russia and ongoing decarbonization efforts are main factors
Calgary, April 6, 2022 – Crude oil prices are expected to remain volatile for the next several years due to global economic sanctions imposed on Russia and ongoing efforts by companies to decarbonize their portfolios. According to the latest forecast from Deloitte Canada’s Resource Evaluation and Advisory (REA) group, prices, which were already increasing before Russia invaded Ukraine because of stronger demand as many countries began easing COVID-19 restrictions, are facing further upward pressure following OPEC’s decision not to increase production to replace supplies no longer available from Russia.
“There’s still a significant misalignment between supply and demand, with a drop in global crude oil inventories to levels we haven’t seen since 2014,” said Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. “Even the release of 60 million barrels from strategic oil reserves by member countries of the International Energy Agency hasn’t made much of a dent in prices, given that this amounts to barely one day’s demand for crude.”
Canadian oil production reached record highs in the first quarter of this year, with oilsands operators now operating near full capacity and WCS maintaining a narrow differential to WTI. Deloitte expects Canadian producers looking to export more oil to the United States to replace some of its imports from Russia may have to defer planned spring maintenance activities and increase their use of shipments by rail due to pipeline constraints.
“Canadian natural gas producers are also likely to increase their exports to the US, which in turn is boosting its LNG exports to European countries looking to reduce their dependence on Russian natural gas,” added Botterill. “We believe the North American gas market will remain strong into the spring, with elevated prices in the second quarter of this year.”
A separate analysis accompanying Deloitte’s latest forecast points out that Canadian producers could earn record-high revenues in 2022, giving them additional resources to fund their decarbonization strategies. It notes that public and private capital markets are also looking to invest in decarbonization initiatives, making this an excellent time for oil and gas companies to consider the role they can play in moving toward a net-zero future. Investing in a greener portfolio will allow these companies to continue as energy providers well into the future. That said, the expected volatility in oil and gas prices over the next decade could impact transition timelines.
“The transition away from hydrocarbons will be affected by many factors, including technology, government policies, infrastructure, consumer sentiment and shifts in demand,” said Botterill. “Oil and gas companies will have many options to consider going forward, so it will be important for them to thoroughly test and model their strategies to find the most viable ones.”
For Deloitte’s complete oil and gas price forecast and its latest analysis of the future of oil and gas in a decarbonized world, visit our website.
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