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Demand, OPEC cuts may boost 2018 oil prices

JOC News Service
Demand, OPEC cuts may boost 2018 oil prices

EDMONTON — A new report predicts crude oil prices will rise and the Organization of Petroleum Exporting Countries (OPEC) will extend current production cuts throughout the year.

The report, from Deliotte’s resource evaluation and advisory group, added transportation bottlenecks to the U.S. market have raised the price differential between Western Canadian Select (WCS) and West Texas Intermediate (WTI) oil, and that infrastructure issues in Canada have created added volatility in natural gas prices between the AECO hub in Alberta and the Henry Hub distribution pipeline in Louisiana.

Similar volatility, the report predicts, will occur as more maintenance projects are planned for this summer.

“Canadian oil prices lagged behind those in the United States during 2017 largely due to increased U.S. production and possible transportation difficulties getting Canadian oil into that market,” said Deloitte’s Andrew Botterill in a statement. “But if Canada can take advantage of declining Venezuelan and Mexican exports to the U.S. and access some of its heavy oil refining capacity, the price differential between WCS and WTI should at least be moderate compared to the historical differential.”

The U.S. is increasing light oil production and more importantly is boosting oil exports to large consumer markets like Asia, Botterill added, noting that market makes up one third of all U.S. exports.

But import volumes for the U.S. in 2017 remained similar to 2016, he said, and Canadian producers picked up some of the market previously supplied by Mexico and Venezuela. Delloitte forecasts a price of US$55/bbl for WTI in 2018 and C$46.40/bbl for WCS.

More fluctuations in the price of Canadian natural gas could occur in 2018, Botterill said, when new maintenance projects are expected to occur. But he added while increased natural gas production has grown U.S. export capacity by 31 per cent in 2017, Canada has not shown as much ability to reach new markets, resulting in low AECO pricing.

The report also predicts drilling and completion costs will rise in the new year as competition for rigs increases and uncertainty about AECO pricing due to a volatile environment could slow the development plans of Canadian dry gas producers.

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