The state of the Canadian and international oil markets was the big topic at the Chamber of Commerce annual general meeting today.
Dominick Hardy, Vice President of Canadian Equities with RBC Dominion, was the keynote speaker and he addressed the major factors influencing Alberta’s oil industry woes. He presented data showing the causal link between Canada’s oil prices and the economic conditions in oil-producing countries around the globe.
Focusing on the highest producing countries, Hardy explained how international supply and demand for oil is shifting. While the United States, Saudi Arabia, and Russia are the dominant producers, those countries need to cut production in order for other oil-producing nations to share in the wealth.
“When oil [production] cuts are announced,” said Hardy. “I think it will be positive for oil prices and we’ll see a rebound.”
He added that economic diversification in countries like China means that the need for oil is decreasing in certain areas, also affecting growth in the industry.
Mr. Hardy emphasized the importance of Bakken crude oil production tapering off in the United States. Transportation of this lighter form of oil, originating in North Dakota and Montana, has been a problem for the American oil industry recently.
According to a research report by RBC Capital Markets, the cost of transporting Bakken oil by rail – the only option for sending it west – is significantly greater than the cost of pipeline transportation. This issue coupled with the fact that Bakken oil cannot be easily refined means that it has a major impact on U.S. oil supply.
The outlook for Fort McMurray’s oilsands production in the next several years is questionable, according to Hardy.
“We’ve reduced our forecast for oil sands production in 2020 from 3.4 million to 3.1 million barrels per day,” he said. “We’re going to keep looking at our forecasts and for the proposed changes to the greenhouse emissions in Alberta. Maybe our forecast needs to come down.”