CALGARY — Energy market analysts say Canadian oil wells will likely continue to be shut down amid weak prices despite an agreement to limit output struck by OPEC and other major producers on the weekend.
The price of Western Canadian Select bitumen-blend oil rose by almost five per cent from Thursday’s close but remained stuck below US$5 per barrel on Monday morning as U.S. benchmark oil inched up by an equally modest amount.
Kevin Birn, a Calgary-based oil market analyst at IHS Markit, says the agreement to cut 9.7 million barrels per day of crude output is unprecedented, but it doesn’t match the demand destruction caused by measures taken to deal with the COVID-19 pandemic.
His firm has forecast global oil demand will shrink by about 20 million barrels per day — one in five barrels of production — in the current month.
He says Canadian producers have already shut down wells accounting for about half a million barrels of oil per day because they can’t make money at current prices and that trend will continue until global energy demand rebounds.
In a report updated on Sunday, Desjardins analysts said more than one million barrels per day of western Canadian oil production will probably be taken offline — about 20 per cent of the total — despite the OPEC deal.
“The scale and the scope of this agreement is really a big deal,” said Birn. “It is unprecedented … but sadly, the demand destruction we’re seeing is even greater.
“What that means is this doesn’t solve the situation linked to the virus and the trajectory of the virus.”
This story by The Canadian Press was first published April 13, 2020.
