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Oil prices start the year strong, but...

Oil prices start the year strong, but...

Posted on: 1/15/2018 | Author: ATB Financial's Economics + Research Team

Alberta’s energy sector has started the year with mixed news. On the one hand, the North American benchmark for oil, West Texas Intermediate (WTI) is seeing its price rise. It’s averaging close to $US 62 per barrel to start the year and is now around levels last reached in late-2014. This price increase brings optimism and is encouraging.

On the other hand, the Canadian benchmark price for oil, Western Canadian Select (WCS) (the price Alberta producers receive) has not improved at all. WCS prices have averaged around $36 (US) per barrel so far this year, that’s about 11 per cent lower than the last three months of 2017. Unfortunately, Canadian pricing is being held back by pipeline bottlenecks. However, many anticipate that with WCS trading at a significant discount to WTI, demand for cheaper Alberta crude should pick up and boost its price. Also, crude-by-rail will alleviate much of this issue towards the end of the first quarter of 2018.

Throughout 2015-2017, greater US production levels were a significant factor in keeping global supply levels higher. This kept prices pinned around $US 50 per barrel (WTI). But, US and global supply levels are on the decline and demand for crude oil is increasing. Overall, this is great news for energy prices no matter what blend is being produced.

The fact that the North American benchmark for oil has started the year strong is good news for all types of oil producers. For Alberta producers, let’s hope the pipeline bottlenecks are resolved soon, and that supply and demand fundamentals continue to weigh in favour of our province’s oil producers.

Oil prices, graph

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