Modest recovery in Canadian oil prices expected in 2019

Calgary, April 3, 2019 – Prices for Canadian crude oil are expected to strengthen somewhat this year as a result of production curtailments in Alberta but ongoing shortages of transportation capacity could moderate any price increases, according to the latest forecast from Deloitte’s Resource Evaluation and Advisory (REA) group.

The forecast notes that the mandatory curtailments of 225,000 barrels per day imposed by the Alberta government in January immediately narrowed the differential between WCS and WTI prices by US$26 per barrel, while the differential between Edmonton Light and WTI narrowed by US$24 per barrel. Without additional pipeline capacity, however, those differentials could widen again during 2019.

“The Alberta curtailments were designed to reduce an oversupply of oil and help bolster prices, but the unexpected delay in Enbridge’s Line 3 pipeline replacement project until the second half of 2020 means we could be back in an oversupply situation before the end of this year,” says Andrew Botterill, National Oil, Gas & Chemicals Leader, Deloitte. “That in turn could push Canadian prices back down again and possibly even mean Alberta decides to extend its production curtailments into next year instead of removing them by the end of December as planned.”

Botterill says another possible effect of a return to an oversupply situation is that companies considering expansion projects this year could delay them, creating additional hardships for oil field services companies. But he expects that will change over the next three years.

“At some point soon, export capacity should be significantly increased even without additional rail capacity, as the Enbridge Line 3 replacement should add 370,000 barrels of capacity per day and the Keystone XL and Trans Mountain expansion are also expected to come online by 2022,” he adds. “This should provide opportunities for production growth between 2020 and 2022.”

The Deloitte forecast expects WTI prices to remain at US$58 per barrel for 2019 and WCS prices to be C$53.95 per barrel.

Prices for Canadian natural gas are also likely to be held in check this year, with supply expected to outstrip demand in Western Canada once winter cold weather ends. Several gas companies have deferred capital spending and active rig rates are down to approximately 35 per cent across the country. Botterill says Deloitte is now forecasting AECO prices for 2019 of $1.75/Mcf.

For Deloitte’s complete oil and gas price forecast dated March 31, 2019, visit our website.

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