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Oil recovery is on its way after two-year-long rout, says energy economist

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CALGARY — As crude posted its best day in more than 10 months, a leading U.S. energy economist declared the price recovery has begun.

“I think we’re in the beginning of a recovery and when we look out, we think over the next half decade, we think we’ll see oil demand increase by five to six million barrels per day,” IHS Inc. vice-chairman Daniel Yergin said Monday at an event hosted by Canada 2020 in Ottawa, where he appeared alongside federal Natural Resources Minister Jim Carr.

The pronouncement is a welcome sign for energy producers in Canada and the United States, who have now weathered an almost two-year-long rout in oil prices.

“Price is really powerful, and what price has done is limited the amount of supply that’s coming on and increased demand,” Yergin said. He said that future oil supply would rise to meet that demand, and growth in supply would mainly come from the five largest suppliers in the Persian Gulf, but also from the United States and Canada.

The price for West Texas intermediate jumped 2.2 per cent or US$1.07 Monday to US$49.69, its highest level since July 21 on the New York Mercantile Exchange.

Yergin made his comments shortly after IHS released a report that said oilsands crude from Canada could eventually push more and more overseas oil shipments out of refineries in Texas and Louisiana.

The report, title, The Two Pillars: The Increasingly Integrated US-Canadian Oil Trade, shows that American oil producers and Canadian oil producers have increased sales to each other’s markets for the pas six years, a relationship which has contributed to a “great revival in North American oil production.”

In recent months, politicians in Alberta and pundits across the country have described U.S. oil producers as Canada’s competition, rather than as customers for Canadian production. The IHS report, published Monday, suggests otherwise. “Oilsands and tight oil may compete for capital, but not for markets,” Calgary-based IHS Energy director Kevin Birn, and one of the authors contributing to the report, said in a release.

“In terms of meeting North American refinery demand, they represent complementary rather than competing types of crude,” he said, and both sources could be used to wean the U.S. and Canada off of overseas oil shipments.

During the past six years, oil companies on the continent have drawn more and more crude from both the oilsands and shale oil plays in the States. As a result, the IHS report said, cumulative North American oil production grew to over 13 million barrels of oil per day in 2015 from five million bbd in 2009. Increasing volumes of Canadian oilsands crude are being processed in the U.S. Midwest and the U.S. Gulf Coast.

At the same time, the U.S. has increased its oil exports to refineries in Eastern Canada, and imported less light oil from overseas producers. Before the boom, in 2009, roughly half of the oil used by North America refiners came from sources overseas, such as Saudi Arabia and Venezuela.

Last year, more than 70 per cent of those same refineries’ throughput was sourced from either Canada or the U.S. — and there is potential to use even more North American oil. The report’s authors write that “opportunities remain for greater use of Canadian heavy oil” in the U.S. market, since U.S. refineries in Texas and Louisiana continue to import about two million bpd of heavy crudes “of similar quality to growing volumes from Canada.”

The IHS study does not say how those additional volumes of oilsands crude could reach the U.S. Gulf Coast. Late last year, U.S. President Barack Obama rejected TransCanada Corp.’s US$8 billion plan to build the Keystone XL pipeline, which would have connected an additional 830,000 bpd of Canadian oil with refineries in the U.S. Gulf Coast.

The pipeline company has since filed a US$15-billion lawsuit and a North American Free-Trade Agreement challenge in an attempt to overturn the rejection.

In a veiled reference to the Keystone XL rejection, Yergin said, “Although there have been some glitches in the U.S.-Canadian energy relationship in recent years, overall it’s been quite positive.”


TAGS: oil, energy, crude


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