Skip to main content

An aerial view of Fort McMurray, Alta., is shown in this 2011 file photo.Jeff McIntosh/The Canadian Press

The Organization of Petroleum Exporting Countries is declaring an early victory in its battle for global oil markets, saying low prices will cut non-OPEC supply growth by a third this year while boosting demand.

OPEC said Monday that it now expects non-cartel countries to increase production by 850,000 barrels a day in 2015, down from its previous forecast of 1.27-million b/d. It slashed its outlook for U.S. supply growth by 130,000 barrels per day, and for Canada, by 20,000 b/d, saying falling capital investment and idled drilling rigs will bite into planned production increases.

The OPEC forecast came as the Conference Board of Canada issued a grim outlook on the impact of sharply lower oil prices on the Canadian economy. The not-for-profit research institute expects investment in the oil industry to drop by 24 per cent this year, prompting further layoffs and government cutbacks, especially in Alberta.

Markets were buoyed by the signs of pain in the oil patch, though a weaker U.S. dollar has also been a factor in crude's recent rebound.

Traders drove up crude prices for the third day, with West Texas intermediate gaining $1.17 (U.S.) – or 2.2 per cent – to $52.86 a barrel, and North Sea Brent adding 54 cents to $58.34.

Some analysts warn that prices will head lower as signs of oversupply continue to mount. Crude prices typically are weakest in the late winter and early spring, when the winter heating season passes in the northern hemisphere and many refineries shut down operations for maintenance.

"It's impossible to call a bottom point," CitiGroup's Ed Morse said in a note Monday, "which could, as a result of oversupply and the economics of storage, fall well below $40 for WTI," and even "as low as the $20 range for a while."

Mr. Morse – Citi's head of commodities research – said the market should bottom out some time in March or April, and then slowly begin to recover.

In its monthly crude report, OPEC pointed to signs of higher oil demand from the United States in December and January, and expects global crude consumption to rise by 1.7 million b/d this year, slightly higher than its previous forecast.

But it expects the biggest short-term impact to be on the supply side. With non-OPEC production hit by spending cuts, the demand for OPEC crude should average 29.2 million b/d in 2015, up 400,000 b/d from its previous estimate. The 12-member cartel is currently producing more than 30 million barrels, though supply is expected to fall in vulnerable countries such as Venezuela and Nigeria.

The OPEC economists expect Canadian production to remain steady in the coming year, after strong growth in recent years. "Output from unconventional sources will gradually be affected by sustained low oil prices," it said.

Conference Board economist Matthew Stewart said the Canadian economy will be hit by a drop in business investment as oil companies respond to lower crude prices, which are still down 50 per cent from last June's peak. The board expects Alberta's economy to decline by 1.5 per cent this year, while Newfoundland and Labrador will feel the pain from lower offshore revenues and the loss of income among itinerant workers who travel back and forth to the oil sands for employment.

Ontario and, to a lesser degree, Quebec, stand to benefit from the boost to the U.S. economy delivered by lower crude prices, and by the decline in the Canadian dollar, which will benefit exporters. Consumers, meanwhile, will save as much as $1,000 a household on lower fuel bills.

Still, the loss of business investment will be felt across the country, especially in the engineering, construction and professional services industries. "The supply chain of the oil industry is certainly spread across the country," Mr. Stewart said. "There will definitely be an impact Canada-wide."

Report an error

Editorial code of conduct

Tickers mentioned in this story