Oil price will hold steady for rest of year, Alberta analyst says

Declining oil production and lower stockpiles mean prices are likely to strengthen into next year, a new report from Deloitte’s Resource Evaluation and Advisory group says.

One major reason for the production drop was the Fort McMurray wildfire, which cut oilsands output by up to 1.5 million barrels a day, enough to temporarily bring world supply below consumption levels, says a price forecast released Tuesday.

Deloitte predicts the average price of benchmark West Texas Intermediate crude will be $50 US a barrel in 2016, up from its $44 US estimate earlier this year.

The rosier view continues in 2017, with prices expected to average $53 US compared to the previous forecast of $49 US.

WTI closed Monday at $48.76 US, down about 0.5 per cent.

“As prices increase, it is expected that many producers will direct this additional revenue to debt repayment and maintaining dividends, which will reduce the level of capital investment and, in turn, slow future production growth,” the report says.

“As such, we foresee medium-term growth in prices as demand eventually outpaces supply.”

The report downplays the impact on oil of the British vote last week to leave the European Union, saying there will be bigger pressures on the industry,

However, the long-term outlook is slightly gloomier. Prices before inflation are only projected to reach $73 US a barrel by 2022, down from $80 US anticipated in April.

Drilling activity in Canada and the United States has dropped sharply the past year. North America only accounts for 35 per cent of the world’s active rigs, the first time in 23 years this measure has gone below 50 per cent.

While Canada natural gas prices have climbed since March and are likely to reach $2.65 per thousand cubic feet in 2017, up from an average $2.10 this year, Deloitte doesn’t expect such strong growth in the future.

One drag on the market is that natural gas storage is at a five-year high, approaching 650 billion cubic feet.



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