CALGARY – Higher oil prices are expected to bolster returns as Canadian energy companies report third-quarter results over the next few weeks but observers say a recent stall in the crude price recovery and ongoing oil market uncertainty make any increases in production and spending plans unlikely.
Oil prices stabilized in the third quarter with U.S. benchmark West Texas Intermediate crude selling for an average of US$40.85 per barrel.
That’s up 44 per cent or US$12.48 per barrel from a second quarter that included the first-ever negative WTI close in April, amid fears that North American crude storage was nearing its limit.
Analyst Michael Dunn of Stifel FirstEnergy says prices continue to be below the levels at which most Calgary oil companies can afford to fund their sustaining capital needs and dividends, especially given subdued profit margins from refining.
Phil Skolnick, an analyst for Eight Capital, says any excess cash generated by oil producers will likely go to paying down debt, buying back shares or paying dividends as companies wait for results of the U.S. presidential election and next moves from the OPEC-plus cartel.
Late last week, National Bank Financial cut its forecast for WTI pricing in 2021 to an average of US$42.25 per barrel from US$43.75.
“Following the unprecedented demand hit from COVID-19 earlier in the year, (global) consumption has improved from the lows but remains approximately five to seven million barrels per day below last year,” it said.
“The demand recovery remains uncertain and a significant risk to any sustained oil price recovery, notably as the impact of a second wave of the pandemic is underway.” 29dk2902l