Canada is expected to lead the growth in crude production among non-OPEC countries next year, as the International Energy Agency see global prices remaining under pressure to the end of 2017.
Alberta's oil sands producers will see lower production than anticipated this year due to the massive Fort McMurray wildfires that has disrupted output since early May, the Paris-based agency noted in a report released Tuesday.
But Canada expects new supply from projects that have been under development for several years in the oil sands and in Newfoundland's offshore. They include Suncor Energy Inc.'s Fort Hills, Canadian Natural Resources Ltd.'s Horizon, and Cenovus Energy Inc.'s expansion of its Christina Lake and Foster Creek in situ projects, as well as the Hebron offshore project operated by Exxon Mobil Corp.
Given its reliance on oil sands and offshore production, Canada's overall production tends to lag price changes more so than competitors in OPEC, Russia or the United States.The IEA expects crude production is expected to grow by 240,000 barrels per day next year – the largest increase outside of the organization of Petroleum Exporting Countries.
However, there are no major projects expected to come on stream after 2017 and it will take the industry some time to change course when – or if – prices do rebound to more attractive levels.
For now, prices have been supported by unplanned outages in Canada, Nigeria and Libya, though they weakened on Tuesday amid concerns over Britain's referendum on exiting the European Union and on the strength of the U.S. dollar.
The IEA said Tuesday that global markets are essentially in supply/demand balance but warned the glut will re-emerge for the first half of 2017 if the supply disruptions end and demand falters. At the same time, crude inventories remain swollen.
"Following three consecutive years of stock build at an average rate close to 1-[million barrel per day], there is an enormous inventory overhang to clear," the agency said. "This is likely to dampen prospects of a significant increase in oil prices."
The agency raised its estimate for global oil demand growth, with strength coming from India, China, Korea and the United States. Americans' consumption of gasoline is expected to grow by 3.6 per cent in the first half of 2016, but that pace is expected to slow in 2017 as pump prices rebound.
Oil sands production fell by an average of 863,000 barrels per day in May, with losses as peaking at 1.3-million at the height of the fire crisis. However, while Canadian output is slowly returning to normal, conflict-ridden OPEC members face longer-term challenges.
Nigeria production has declined by 500,000 barrels so far this year to 1.37-million barrels per day, its lowest level in nearly 30 years as militants in the oil-rich Niger delta attack production facilities. "Given this is a change in the political landscape and not an 'unplanned' outage as such, disruptions could persist for a while," analysts at London-based Energy Aspects said in a note.
Libyan production was off by 80,000 barrels per day in May but recovered as ports were re-opened. Still, the North African country faces ongoing conflict, including attacks from the Islamic State extremist group.
And Venezuela is confronting a deep economic crisis that is hurting oil production. The International Energy Agency estimated Venezuelan production was 150,000 barrels per day lower in May than in May 2015, and still falling, though one analyst noted that with the economy's economy tanking, less oil is needed for domestic consumption and therefore exports aren't hit as hard.