Oil's brief push above $50 (U.S.) has stirred optimism in Canada's energy industry, offering partial relief to producers hobbled by more than two years of slumping revenues and cash flow.
But prospects for dusting off stalled growth plans are remote, with prices languishing well under levels needed to support big-ticket oil sands projects and companies outside the high-cost region still grappling with crippling debt loads.
"You can certainly breathe easier that the banks won't come after you as badly, so I think that will help," said Laura Lau, senior portfolio manager at Brompton Funds in Toronto. "But can you grow? No, you can't grow. You kind of tread water."
U.S. benchmark West Texas intermediate crude touched $50 a barrel last week for the first time since early October, supported by supply disruptions near Fort McMurray, Alta., and elsewhere, as well as faltering production of U.S. shale oil following a year and a half of cuts to spending and drilling.
Numerous analysts have said they expected global supply and demand to edge closer together as the year progresses, and to come back into balance in 2017, even without action by the Organization of Petroleum Exporting Countries to rein in output. The cartel meets June 2 in Vienna.
The big question is whether the recent strength in crude markets will persist, as oil sands producers gradually restore output after more than a million barrels a day were taken off the market owing to massive wildfires in northern Alberta.
For instance, Suncor Energy Inc. said Sunday it has started the "safe and staged restart" of operations near Fort McMurray, with some production beginning early last week and more expected by the end of this week in certain projects.
WTI pared gains after breaching $50 last Thursday. On Friday, the contract retreated another 15 cents to $49.33 a barrel, tempered by a strengthening U.S. greenback and fears that higher prices will prompt increased production from U.S. shale zones.
So far, investors remain unconvinced that the rally will evolve into a meaningful recovery. A year ago, oil and energy stock prices rose sharply in the spring, only to crash again in the summer. This year, since a February low of just over $26 a barrel, crude has surged about 90 per cent.
In the same period, the S&P/TSX Energy Group of shares is up 34 per cent – a healthy improvement but not lockstep with crude. Natural gas prices have remained depressed.
"Equities have not been as prone to reacting this time around," said Samir Kayande, an analyst at RS Energy Group. "Outages notwithstanding, we're still in a world where supply and demand are not in balance, though that's probably going to close sooner rather than later."
In Canada, scores of smaller oil and gas producers have already succumbed to weak prices and several others have warned they are at risk of going under, pressured by debts accumulated when crude fetched closer to $100.
This month, struggling oil sands producer Connacher Oil and Gas Ltd. said it was planning to completely shut down its steam-driven Great Divide project, even as it tries to sell itself after filing for creditor protection. Penn West Petroleum Ltd. hired financial advisers to negotiate with lenders after saying it may default on its debt by the end of June.
Meanwhile, the number of drilling rigs has not markedly increased, even with the latest run-up in crude prices, underscoring wariness in the industry. Last week, the Canadian Association of Oilwell Drilling Contractors reported 38 rigs were operating in Canada, or just 6 per cent of the total fleet.
As crude prices improve, U.S. shale drilling will resume well before any new Canadian oil sands projects proceed, mostly because companies can start generating cash flow much more quickly, Brompton Fund's Ms. Lau said.
One positive note for the industry is that the downturn has lowered costs as suppliers have had to compete to attract business from energy companies that have slashed spending. Still, developers are likely to remain skittish.
Cenovus Energy Inc. chief executive officer Brian Ferguson said last week it's working on the assumption that prices will stay volatile, trading between $35 and $65 a barrel over the next year. There is no specific price trigger that would prompt it to revive expansion, he said.
Companies likely need prices in the neighbourhood of $70 to $80 a barrel to justify new projects in the oil sands, said Paul Sankey, managing director of New York-based Wolfe Research LLC. "And that's pretty hard to come up with right now," he said.
With files from reporter Richard Blackwell in Toronto