Deloitte predicts modest increase in oil prices this quarter

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Calgary, July 6, 2023 – Crude oil prices are expected to increase modestly over the next three months as reduced supplies begin to drain global crude inventories, according to the latest forecast from Deloitte Canada’s Resource Evaluation and Advisory (REA) group. Further OPEC+ production cuts, including Saudi Arabia’s recent announcement of an additional cut of one million barrels a day, should help to prop up prices despite weaker demand caused by global economic concerns.

“Even though China has increased its consumption of crude oil, overall global demand will remain somewhat muted which, in normal circumstances, would lead to steady or lower prices,” says Andrew Botterill, National Energy & Chemicals Leader at Deloitte Canada. “We don’t expect that to happen in the next quarter, however, as cuts in supply and the drawing down of crude oil stocks, particularly in the United States, should provide some short-term support for prices.”

The Deloitte forecast notes that seasonally-high natural gas storage levels in Europe at this time of year, coupled with reduced demand due to warmer than expected winter weather, have pushed down natural gas prices and reduced demand for liquid natural gas imports. Lower global demand and higher North American production levels created volatile prices for Canadian natural gas over the past quarter, and Deloitte believes this could be exacerbated this summer by higher-than-usual maintenance activities that will temporarily close some pipeline segments.

“Last summer, natural gas prices in parts of Alberta and British Columbia fell to zero or below on several occasions due in part to outages along the pipeline system servicing those areas,” says Botterill. “We will probably see something similar this year with the additional outages that are planned.”

Oil and gas production in Alberta and B.C. has also been affected recently by a series of wildfires plaguing those provinces. Drilling activitiy was cut back as companies sought to protect their staff and assets in the affected areas, leading to capital investment delays and revised production targets.

In a spotlight on Electrification and the Evolution of the Alberta Electricity Market, Deloitte notes that coal to gas conversion is already a major trend in Alberta electricity generation, along with the growing share renewables are taking in that market. Alberta’s “energy only” market model, in which suppliers are paid for electricity supplied rather than capacity, has increased electricity price volatility.

“This has created additional risk for oil and gas producer cash flows as power costs become a bigger element of operating costs,” says Botterill. “As a result, some producers are entering into hedging agreements or investing in power generation operations to try and mitigate that volatility.”

For Deloitte’s complete oil and gas price forecast and the full details of its report on the evolution of Alberta’s electicity market, visit our website.