Expert: Oil prices will climb, but not overnight

By Geoff Lee

March 30, 2017 12:00 AM

The sun will rise tomorrow, but it may take longer to shine brightly on the oil and gas sector in Western Canada.
That’s the forecast of Angus Watt, senior investment advisor with National Bank Financial in Edmonton.
Watt was the keynote speaker at the March 14 Business Education Conference in Lloydminster and projected the worst of the downturn in oil is over.
“We’ve got our fingers crossed; we hope we’ve seen the bottom,” said Watt, who broadcasts over 55 times per week on Global TV Edmonton and 630 CHED.
He said heavy oil produced in Lloydminster has lots of competition in shale gas and shale oil.
On the bright side, he said development costs have dropped by half since the start of 2014 because it takes half the time to drill a well today with new equipment.
Watt said hard costs for oil sands producers in the Fort McMurray area have also lowered to around $25 a barrel.
“The problem is we then have to discount our oil to get it from here to the market, whether it be the U.S. or Asia,” he said.
Western Canadian producers are faced with about a $14.50 per barrel discount to get their oil to refineries in the U.S. Gulf Coast, while Asia has a discount of just $8 a barrel.
Watt said world demand for oil continues to be strong, especially from China, despite the current over supply.
“We are in the process right now off the coast of Newfoundland of exporting our first tanker to China,” said Watt.
Husky Energy sold a cargo of one million barrels of oil from its offshore Newfoundland oil projects to China with the shipment due to depart before April.
Watt said China’s economy is expected to grow 6.5 per cent in 2017,  along with oil imports.
Canada’s GDP is under two per cent,  but a lot of that is commodity driven.
“So, on a go forward basis, with the world economy we should have increased demand for oil,” said Watt.
World global oil demand is currently at 92.5 million barrels a day and is expected to top the 100 million barrel per day mark in 2019.
The International Energy Agency’s latest five year oil market forecast, Market Report Series: Oil 2017,  released in March, projects global oil demand rising to about 104 million barrels per day by 2022.
Furthermore, IEA expects the need for more production capacity to become apparent by the end of the decade, even if supply appears plentiful today.
The IEA forecast suggests oil prices could rise more sharply by 2022 if the spare production cushion is eroded.
Closer to home, Watt said Alberta is coming off a negative 2.3 per cent GDP economic growth rate in 2016 with Saskatchewan down 0.5 per cent and British Columbia up 2.8 per cent.
Watt says B.C.‘s growth will slide this year and next year, while Alberta and Saskatchewan will increase.
Alberta’s 2017 forecast is two per cent growth in 2017 and 1.3 per cent in 2018.
“So it’s mediocracy as we go forward, but it’s still growing, that’s the important part,” said Watt.
Watt expects Alberta’s unemployment rate to rise to between eight and nine per cent over the next couple of years because more people will be looking for work.
“Saskatchewan’s always lower because you’ve got more of a farming community,” said Watt.
“If you have a farm you may or may be not making any money, but you’re still working.”
Optimism in the overall economy has pushed up actual housing starts in Alberta from 1,585 in February 2016 to 1,957 in February 2017.
Actual housing starts in Saskatchewan have increased from 253 in February, 2016 to 288 this February.

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