Photo: The Canadian press
Western Canadian producers attempt to restore part of oil production as crude prices rise with demand thanks to gradual opening of the world economy and OPEC and reductions in Russian production .
But analysts say the companies hit hard by low crude prices so far this year are cautious and will again choke oil production if the recent higher prices prove unstable.
“Everything is going in the right direction to continue to see oil prices recover,” analyst Eight Capital analyst Phil Skolnick said on Tuesday.
“As long as nobody cheats on their (production) reductions and we continue to see states open up, provinces in Canada open up, other jurisdictions in the world open up, it’s more downwind on the price. “
The recent oil rebound is linked to signs of increased fuel demand in China and North America as restrictions on the COVID-19 pandemic are gradually lifted.
Meanwhile, the world’s supply of oil is shrinking thanks to production cuts agreed by OPEC and Russia, as well as voluntary cuts by producers in Canada and the United States.
Reference oil prices in the United States were above US $ 33 per barrel last week, compared to less than US $ 13 a month ago. At one point in April, the price fell to a negative level for the first time.
However, prices remain about 45% lower than they were at the start of the year, which means that individual operators make production decisions project by project, as the profitability of their particular operations remains very slim said Skolnick.
Oil producers say they are putting back online some of the 875,000 barrels per day of volume reductions announced in Canada, he said.
“If prices stay where they are, I wouldn’t be surprised to see that number start to drop,” said Skolnick.
However, about 300,000 b / d of cuts in oil production cannot be immediately recovered, he said.
Indeed, they are due to project maintenance shutdowns, some of which were scheduled earlier due to low oil prices and others which should take longer than usual due to physical distancing measures to avoid the spread of the coronavirus.
Refinery utilization rates in Canada exceed expectations this month as fuel demand increases with the number of drivers hitting the road, said analyst Matt Murphy of Tudor Pickering Holt & Co.
“There is an increase in the bottom of the additional demand for gasoline, for example, so it makes these refiners work a little harder,” he said.
“Western Canada and Ontario have both had fairly healthy rebounds.”
Western Canadian refineries operate at about 73% of capacity, down from early May, but well below expectations, he said, while the Ontario market fell to around 70% , equal to last year’s levels, after posting an increase earlier in the month.
The price of the June contract for the Western Canadian Select bitumen blend averages about US $ 29.35 per barrel, up from the 2020 low of US $ 11.25 per barrel for the May contract , according to NE2, an oil brokerage and derivatives exchange with operations in Calgary and Houston.
Contracts in June of last year averaged around US $ 28.75 per barrel.
Rising crude prices are helping oil companies share prices on the Toronto Stock Exchange.
The S & P / TSX Capped Energy Index closed at just under 80 points on Tuesday, well before the close at 41.95 on March 18, but down 45% from 145.96 the last day of 2019.