Skip to main content

In this Jan. 22, 2014, file photo, a partially constructed gas refinery at the South Pars gas field is seen on the northern coast of the Persian Gulf in Asalouyeh, Iran.

Vahid Salemi/The Associated Press

With U.S. sanctions on Iran due to kick in next month, oil markets will continue to face upward pressure on prices even as those higher energy costs cause slower growth in the global economy, the International Energy Agency said on Friday.

However, Canadian crude producers continue to miss out on the commodity price surge as both heavy and lighter grades of Western Canadian crude sell at record discounts compared with North America’s benchmark West Texas intermediate (WTI). The discount for Western Canadian select – which touched US$52 a barrel earlier in the week – was US$49.65 in trades for November delivery on Friday, according to Net Energy, a Calgary oil-trading firm. Canadian light oil – which typically sells at a slight discount to WTI – fetched US$28.50 less a barrel on Friday, Net Energy said.

WTI retreated from a midweek high of US$75 to close Friday at US$71.08, while the international benchmark North Sea Brent settled at US$79.70.

Story continues below advertisement

Global markets are currently well-supplied with oil, as key countries – including Saudi Arabia, Russia, the United States and Canada – are each producing near-record volumes, the Paris-based IEA said on Friday in its monthly oil market report. However, demand has also been strong, and major suppliers such as Iran and Venezuela have seen their exports fall precipitously.

As a result, there is limited ability to produce more crude quickly and that spare capacity will be squeezed even further in the coming months, the agency forecast.

“This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy,” the report said. The IEA pared back its demand forecast by 110,000 barrels a day (b/d) for both this year and 2019, owing to a slowing economy and higher crude prices.

IEA president Fatih Birol recently echoed calls from U.S. President Donald Trump that major producers within the Organization of Petroleum Exporting Countries (OPEC) must boost their output to keep a lid on prices.

Iran’s exports fell by 800,000 b/d in September from its recent peak of 1.6 million b/d as the Trump administration threatens to punish refineries that ignore U.S. sanctions being imposed after Washington withdrew from the nuclear-weapons agreement entered into by former U.S. president Barack Obama. When sanctions formally kick in next month, the impact will depend on the degree to which the U.S. administration grants waivers to key Iranian customers in India and elsewhere that would support exports from the OPEC heavyweight.

Canadian producers have been hit not only by bottlenecks at home, but also by a shortage of pipeline capacity in the United States, which has kept a lid on WTI. Canadian light-crude prices fell sharply this week, as inventories build in Alberta and producers scramble to secure rail capacity.

In addition to the pipeline constraints, Canadian producers have been hit by a large number of U.S. refinery customers going down for maintenance at the same time, said Rory Johnston, economist with Bank of Nova Scotia. There is more than one million b/d of refining capacity offline for maintenance, compared with 600,000 b/d at this time last year, he said. The differentials should improve somewhat when those plants are back in operation.

Story continues below advertisement

Calgary-based companies typically set their capital budgets for the coming year in the fall, and the current steep discounts will constrain spending in 2019, he said.

The pain is spreading from producers to the service sector, with drilling companies expecting little improvement in the coming year, said Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors. “It’s definitely not good news at a time when we’re still struggling to keep our heads above water,” he said.

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter