Global oil supplies show few signs of ebbing, as producers from OPEC to Canada keep pumping crude despite months of sinking prices.
A Reuters survey showed members of the Organization of Petroleum Exporting Countries boosted output in March to its highest level since last October, adding more supply concerns to a market already unnerved by a possible surge in Iranian oil exports.
At the same time, U.S. shale output remains robust, down just 1.4 per cent in January from December. And oil sands producers in Canada are set to add hundreds of thousands of barrels per day of fresh capacity in northern Alberta this year, exacerbating a glut that has hammered corporate profits and prompted thousands of industry layoffs.
The flood of new oil points to further weakness in energy markets, as many producers remain unwilling to tap the brakes on output even as lower crude prices dent profits and curb investment in new developments.
In the case of Canada's oil sands industry, companies feel they have little choice but to finish complex, late-stage projects after sinking billions of dollars of investments in recent years, when oil commanded higher prices.
"There are still some projects in the pipeline that are coming online this year," said Krishen Rangasamy, an economist at National Bank of Canada.
"Output could be more resilient than many people think."
Oil prices have been more than sliced in half since last summer amid oversupply and weak demand in key markets, prompting the industry to make deep cuts to capital spending and investor dividends as producer cash flows shrivel.
But output has held up, even as the broader Canadian economy slows. Statistics Canada said Tuesday that Canada's crude oil and natural gas output climbed 2.6 per cent in January after falling 2.1 per cent in December, as seasonal maintenance finished at some oil sands facilities. The increase helped offset service-sector weakness, contributing to a smaller-than-expected drop in gross domestic product of 0.1 per cent.
However, oil prices remain well under levels that would justify longer-term expansions in the high-cost resource.
Already, more than 500,000 barrels per day of new projects have been shelved, according to National Energy Board data. They include the second phase of Suncor Energy Inc.'s MacKay River development, as well as future stages of projects planned by Royal Dutch Shell PLC and Husky Energy Inc.
Some analysts say more delays and cancellations are likely as oil prices languish. Alberta's economy is poised to slow markedly compared to recent years, and the provincial government is forecasting a $5-billion deficit in the upcoming fiscal year.
"I think you're going to see investment take a beating," Mr. Rangasamy said.
A possible surge in Iranian oil exports is the latest factor weighing on global oil prices, heightening fears that more crude could hit markets already grappling with bulging global inventories.
Brent crude fell $1.18 (U.S.) or 2.1 per cent to $55.11 a barrel on Tuesday as international negotiators sought a deal that would see Tehran accept restrictions on its nuclear program in exchange for the lifting of U.S. sanctions. West Texas intermediate oil for future delivery slid 2.2 per cent to $47.60 a barrel.
However, the prospect that a deal would lead to an immediate increase in Iran's oil exports is overblown, said Phil Flynn of the Price Futures Group in Chicago.
"Is that going to mean we get one million barrels of oil on the market overnight? Probably not," he said. "It's going to take some time. So even though you're going to get a knee-jerk reaction, if we get a deal, to the downside, I don't think it's as bearish as people think."