The 2018 federal budget, released Feb. 27, did not have good news for the oil sector, with a forecast for lower oil prices.
In its supporting budget plan documents, the federal government predicted a drop in oil prices.
鈥淟ooking ahead, crude oil futures prices continue to suggest that the benchmark WTI oil price will ease from current levels back to the US$50 range over the forecast horizon. Private sector economists surveyed by the Department of Finance Canada currently project that WTI prices will improve modestly over time to US$62 per barrel by 2022. These private sector projections are broadly on par with those in the 2017 Fall Economic Statement,鈥� the document said.
In giving its reasons for this, the document said, 鈥淕lobal crude oil prices continued to increase in 2017, with the price of West Texas Intermediate (WTI) crude oil averaging just under US$51 per barrel, compared with an average of US$43 per barrel in 2016. Prices were supported by stronger global demand and a supply agreement between Organization of the Petroleum Exporting Countries (OPEC) nations and 10 non-OPEC producers to restrain their collective output. As a result, in January WTI prices rose as high as US$66 per barrel for the first time since December 2014, before declining slightly in February.鈥�
It noted the impact of growth of American production, saying, 鈥淚ncreasing U.S. production, driven by growth in the shale oil sector, has put a limit on price increases. U.S. crude oil production increased steadily through 2017, reaching its highest level in more than three decades. The U.S. Energy Information Administration estimates that U.S. crude oil production will increase further this year, reaching a historical high of 10 million barrels per day. Observers have noted that should the U.S. exceed these production levels, it could potentially overtake Saudi Arabia and Russia to become the world鈥檚 top crude oil producer.
鈥淭he recent rise in global benchmark prices has not been matched by higher prices for Western Canadian producers. While Canadian production has continued to rise, reflecting past investments, pipeline capacity constraints have limited producers鈥� options for moving their products to U.S. markets. As a result, the discount on the Canadian effective price vis-脿-vis WTI has risen to over US$20 to date in early 2018, more than double its 2017 average (US$9.61).鈥�
