Varcoe: As oil hits $70, new forecast shows Alberta’s economy primed to lead Canada in growth in 2021 and ’22
Welcome back to a world of US$70 oil.
It’s been more than two years since benchmark U.S. oil prices were at such a lofty level and they briefly returned to that mark on Monday, bolstering expectations of a revival for the Canadian oil sector in the second half of this year and into 2022.
Higher energy prices are also expected to help jump-start an economic recovery in Alberta, as a new Conference Board of Canada report projects the province will lead the country in growth this year and next.
For Canada’s petroleum producers, the sudden dash to $70-a-barrel oil is fuelling hopes of sustained strength over the next 18 months, although the price discount for Western Canadian Select (WCS) heavy crude has widened in recent weeks.
While WCS oil was trading around $55 a barrel on Monday, prices for benchmark West Texas Intermediate crude closed at $69.23 a barrel — after hitting $70 earlier in the day — and have jumped by more than 40 per cent since the beginning of the year.
“We are enormously excited about it and it’s probably ahead of our expectations by certainly two to three years. We thought we would get to $60, not $70,” Baytex Energy CEO Ed LaFehr said Monday.
“I am very bullish … All around, this is the strongest I’ve felt in five years in Baytex.”
A little over a year ago, there wasn’t much optimism in the oilpatch.
The Canadian sector was marooned in a crippling slump. Global energy demand plunged because of the pandemic, oil prices sank last spring and producers slashed spending and cut jobs.
The past 12 months have seen a sharp U-turn, with energy consumption recovering as COVID-19 vaccination levels have accelerated and economies have opened back up.
At a meeting last week, OPEC+ countries remained cautious and only increased output by 840,000 barrels per day (bpd) in July, instead of opting for higher production levels.
South of the border, U.S. oil production growth remains muted.
“This is a reasonable place for us to be,” said Ian Nieboer, managing director of energy consultancy Enverus in Calgary.
“It’s very buoyant, it’s great and there are a lot of smiles in the oilpatch right now.”
Enverus expects oil demand to continue growing and hit 98.8 million bpd in the final three months of the year, close to pre-pandemic levels and up from 93 million bpd in the first quarter.
With the global economy recovering and OPEC+ acting prudently, WTI crude will likely stay in the high $60s or low $70s through the second half of 2021, Nieboer said.