Varcoe: Divergence of crude, natural gas prices for Canadian producers

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Oil costs have marched greater over the previous month — and discuss of $100-a-barrel crude is within the air — whereas pure gasoline costs throughout North America proceed to languish.

For Canada’s oil and gasoline sector, 2024 is shaping as much as be a story of two commodities which can be heading in distinctly completely different instructions.

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Because the heads of Canadian petroleum producers made their annual trek to Toronto for the BMO Capital Markets CAPP Vitality Symposium this week, a divided outlook faces the sector.

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Pure gasoline costs in North America stay weak on account of excessive stock ranges and warmer-than-normal winter climate crimping demand.

South of the border, some U.S. producers are shutting of their gasoline. In Canada, a handful of corporations have deferred gasoline drilling or have shifted spending to grease.

In the meantime, benchmark U.S. oil costs are up greater than 20 per cent this 12 months.

And a brand new forecast by power analytics agency Enverus initiatives that international oil demand won’t peak this decade — as some businesses have predicted — however is predicted to proceed rising.

Benchmark West Texas Intermediate (WTI) crude reached a six-month excessive final week, buying and selling above US$87 a barrel on Friday, earlier than closing down $1.20 on Tuesday at $85.23.

Some forecasters are elevating their projections, saying oil costs may close to and even high $100 a barrel in some unspecified time in the future this 12 months, though it might possible be short-lived.

On Tuesday, the CEO of Vitol Group — the most important impartial oil dealer on the planet — informed a convention in Switzerland that crude costs are prone to keep between $80 and $100 a barrel in 2024, as demand will increase by almost two million barrels per day (bpd), in accordance with a report by Bloomberg.

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In Canada, the worth differential between WTI and Western Canadian Choose heavy oil has additionally been shrinking with the approaching startup of the Trans Mountain enlargement challenge.

“You watch oil costs go up and differentials squeeze in, I simply can’t keep in mind a time when it’s been this good,” Brian Schmidt, CEO of Tamarack Valley Vitality, a mid-sized oil producer in Western Canada, stated in an interview.

“There’s chatter of $100 oil . . . It’s not sustainable. However you realize what? Principally something (at) $75 to $80, you ought to be leaping for pleasure.”

A number of forces are pushing oil markets greater this 12 months, together with rising international demand, stronger-than-expected financial development and OPEC-plus nations extending manufacturing cuts.

Geopolitical components are additionally weighing in the marketplace.

The U.S. Vitality Info Administration just lately elevated its forecast for Brent crude, projecting it would common US$89 a barrel this 12 months and $87 in 2025.

“Now we have seen resilient international demand for oil,” Brad Wells, head of power at BMO Capital Markets, stated from Toronto.

“We’ve seen a few years of comparatively minimal reinvestment in provide.”

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Al Salazar, a director at Enverus Intelligence Analysis, famous the agency elevated its forecast for Brent crude costs by $5 a barrel, and now expects it to common $95 within the fourth quarter.

He stated oil markets may high $100 briefly in the course of the summer time when the busy driving season arrives.

“It’s completely potential. In reality, the one factor that’s retaining us from calling that’s the reality OPEC might resolve to launch some barrels and loosen the cuts within the second half of the 12 months,” Salazar stated.

A report launched Tuesday by Enverus projected international oil demand will proceed to extend and attain 108 million bpd by 2030 — up from about 102 million bpd final 12 months — and continue to grow in the course of the first half of subsequent decade.

Final 12 months, the Worldwide Vitality Company made headlines forecasting demand for oil and gasoline will peak this decade.

But, electrical automobile momentum in the US is slowing, gasoline financial system requirements proceed to overlook targets and an absence of recent oil provide will possible propel costs greater after 2030, Salazar stated.

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For gasoline, the outlook is completely different. The U.S. EIA says that even with decrease manufacturing anticipated this 12 months, it expects to see file quantities of gasoline in storage when the winter season begins in November.

It forecasts benchmark U.S. gasoline costs will common $2.20 per mmBTU this 12 months.

In Canada, the nation’s largest gasoline producer, Tourmaline Oil Corp., stated in March it might cut back its forecast capital finances by $220 million this 12 months to $2.13 billion given weak gasoline costs.

Birchcliff Vitality CEO Chris Carlsen, whose firm introduced in January it might defer drilling 13 gasoline wells deliberate for the primary half of the 12 months till later in 2024, stated Tuesday the corporate will rigorously think about its resolution in June.

Carlsen expects the supply-demand scenario to enhance when the huge LNG Canada terminal begins working inside the subsequent 12 months, exporting home gasoline to Asia.

“The narrative of pessimism into the summer time . . . you may flip that into optimism of late 2024 after which into 2025, with LNG approaching,” he stated.

Some gasoline producers are also benefiting from greater oil costs on account of their output of pure gasoline liquids.

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NuVista Vitality CEO Jonathan Wright identified two-thirds of the corporate’s manufacturing is pure gasoline, whereas two-thirds of its money move comes from condensate, which is tied to grease costs.

“We’re at all times going to have a little bit of a climate lottery with pure gasoline, however it at all times solves itself as a result of now we’re seeing manufacturing reasonable,” he stated.

However it would take persistence.

“We’ve tooled our firms to have the ability to climate these troublesome occasions,” stated CAPP chair Paul Myers, CEO of gasoline producer Pacific Canbriam Vitality.

“We’re going to have some robust occasions over the following 12 months and a half or so, after which we’ll begin to see that change.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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