Skip to main content
Welcome to
super saver spring
offer ends april 20
save over $140
save over 85%
$0.99
per week for 24 weeks
Welcome to
super saver spring
$0.99
per week
for 24 weeks
// //

Many economists argue that the decline in oil prices is temporary due to stalled economic growth in Europe, China and the United States.

Vlad Kochelaevskiy

Oil producers must come to grips with a new economic reality.

With global economic growth cooling as North American production of light oil ramps up, the mix of softer demand with solid supply is expected to weigh on crude prices.

Working with these assumptions, CIBC World Markets analyst Andrew Potter revised his long-term price forecasts, lowering expectations for light oil from $100 (U.S.) to $95 per barrel, and more significantly, for heavy oil from $100 down to $85 per barrel.

Story continues below advertisement

The root of these adjustments is a "structural change" in light oil cause by anticipated U.S. production growth that will ease the pressure on the balance between supply and demand.

That change, in turn, weighs on heavy oil, which typically trades at a discount. "We are generally more bullish on heavy oil pricing but note that will also be pressured somewhat by the significant discounting that will occur for light oil," Mr. Potter noted.

Running these assumptions, as well as a slight uptick in natural gas prices, through his models, Mr. Potter came away with significant revisions to his price targets for oil and gas producers. Integrated firms like Suncor were hit the least, falling about 6 per cent on average, while Canadian large cap producers such as Canadian Natural Resources and Nexen were down 13 per cent on average and pure oil sands plays saw their average price target fall 18 per cent.

Keep in mind that these are just one bank's revisions, but similar expectations are bound to be replicated as analysts respond to a new economic reality.

And if these changes do play out, it will be interesting to see how the companies themselves respond. Remember that Réal Cusson, Canadian Natural Resources's senior vice president of marketing, recently said that companies will flirt with trouble if crude drops to $85 (U.S.) per barrel.

However, Mr. Potter himself also acknowledges that any outlook, particularly in the shorter term, is hard to predict. "Should macro concerns ease as they did in [the first half of 2011], we could see WTI pricing back in the $100 (U.S.) per barrel range as supply/demand balances should tighten and spare capacity remains relatively low. On the flip side, oil could trade lower if some resolution is reached with Iran, particularly if Saudi Arabia does not curtail production quickly. Additionally, it is quite plausible that macro sentiment worsens, which would further pressure oil demand growth expectations."

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
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.

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:

  • 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

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies