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Deloitte: OPEC Production Cuts Helping Stabilize Oil Prices

Fort McMurray, AB, Canada / MIX 103.7
Deloitte: OPEC Production Cuts Helping Stabilize Oil Prices

Oil prices are expected to hover around $52 US a barrel this year.

That’s according to Andrew Botterill, Partner with Deloitte’s Resource Evaluation and Advisory group, who released their first quarter price forecast on Wednesday.

Back in January, Deloitte predicted prices to stay around $55 US a barrel. Though the forecasted price is now lower, Botterill tells Mix News they are starting to balance and stabilize.

“It’s a matter of how sustainable some of the drilling activity is and to make sure that companies aren’t getting too far ahead of themselves.”

Botterill says the production cuts by OPEC, which were expected to add stability to the sector, resulted in more companies drilling excess amounts of product.

“I think there is a little bit of concern that we might be bringing supply on a little quicker than we can handle.”

OPEC cut production so they could reduce the size of their inventories while creating a better supply and demand balance. Botterill notes countries like Canada, the United States and other international areas are taking advantage by increasing their production.

“This is providing a little bit more stability for North American producers, a lot have not drilled much in the last couple years due to concern on low prices. These cuts have cut a lot of supply out of the sector and it’s created a little bit of room and a little bit of relief in price that’s getting some companies out there drilling more.”

Botterill notes there is still concerns over the drop in oil prices. They could see a dip if North American companies continue to drill aggressively or OPEC returns to their original production.

If production does return, prices could be pushed down and certain projects in North America could stop altogether.

“What we might see is North American drillers have to quit drilling because of that fear of $40 or something less could be there if OPEC brings those types of volumes back on.”

Botterill notes over the first quarter, there have been quite a bit of merger and acquisitions. The biggest being Cenovus spending $17.7 billion to acquire Canadian assets from ConocoPhillips.

He says there could be more deals if oil prices continue to stay balanced and stabilized.

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