For an industry that has endured a global pandemic and cratered oil prices over the past year fueled by OPEC flooding the market, the recent upswing in prices is good news for the Canadian oil and gas sector.
OPEC has the power to control the market and set the price by controlling its production output.
OPEC, with its 13 member countries, states their mission “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”
OPEC sets production targets for their member countries and decide how much oil to produce. When prices rise, OPEC calls for increased production. When prices dip, they call for limiting production, which tightens the market and allows them to control the narrative.
This benefits their members and makes for an uphill battle for non-member countries.
This was the case this time last year when the organization sent much of the world’s global producers and the markets (by filling them with oil as cheap as it’ll go) into a frenzy in the midst of COVID-19.
Per OPEC’s website, 79.4% of the world’s proven oil reserves are located within OPEC member countries, and state their members have made significant additions to their reserves in past years, currently at 1,189.80 billion barrels.
Canada’s proved reserves rank third (97% of which are oil sands and 10% of the world’s reserves), estimated at 171 billion barrels, with 166.6 billion found in Alberta.
The organization creates problems and risks for Canada, the world’s fourth-largest oil producer and third-largest exporter, especially as the country struggles with a lack of transportation, access to larger markets, and selling its product at a discount to the United States.
Last week, Canadian producers announced the idling of nearly half a million barrels per day, helping to tighten global supplies as OPEC called for greater unity among its producers. OPEC is tough to predict, highlighted as OPEC allies and Russia recently made a deal to contain a supply glut by about 30%.
CNRL is curtailing roughly 250,000 barrels per day, Suncor 130,000 barrels per day, and Syncrude Canada 70,000.
The rise in oil prices is good news for the Canadian oil and gas sector and a much-needed shot in the arm. These prices are helping the sector bounce back and give it prices where it can sustain itself and thrive, especially in Alberta.
Increased prices and demand for product (especially the anticipation for further international travel) have demonstrated the sector’s ability to be resilient in the face of major threats and continue to be a required service.
Questions abound with regards to OPEC’s prevalence and whether they will fade away. Factors such as US shale oil growth, non-member countries thriving and broadening a supply base, OPEC’s stronghold may be weakening.
Canada’s outlook is bright with cautious optimism for the back half of 2022, especially if oil prices continue on the road they’re on.