The world is awash in oil is Canada making it worse?

Collectively, Canada's energy sector lost more than $600 million in the first three months of this year, and the Canadian economy shrank in the same period,as the collapse in oil prices took its toll.

Canada isnot even the tail on the dog, it's like a few hairs on the tail of the dog- Judith Dwarkin, ITG Investment Research

Now, nearly 18months after it started, the oil glut continues.

At its worst point this spring, the world was producing fourmillion barrels per day more than was being consumed.

• World oil demand is up, but the glut remains, IEA says

• Canadian crude output growth set to slow

And Canada is playing a role inthat oversupply.

Just last week, in fact, Imperial Oil announced that the second phase of its Kearloilsands operation had started production ahead of schedule. When it fully ramps up in the coming months,the expansion alone will add110,000 barrels per day to Kearl's production. That's around40 million barrels in a year just from one expansion.

Other expansions in the workswill see Canadian oilsands production increase by around 15 per cent this year to 2.3 million barrels per day.

It raisesthe question: Are Canadian oil producers making the problem worse?

It's all about 'flavour'

For those who watch the Canadian scene closely, the answer is no.

"Canada isnot even the tail on the dog," saysJudith Dwarkin, energy economist with New York-basedITG Investment research. "It's like a few hairs on the tail of the dog contributing to the global supply picture."

Indeed, when it comes to global supply, the issue is all about the flavour of oil.

The current problem is not with the heavy oil that is Canada's main export, but with the light oil that is being produced in Saudi Arabia and in the U.S. shale oil fields.

Of the extra production that came onto the market in 2014, 200,000 barrels per daycame from Canada, while 1.3 million bpd came from the U.S.

And despite all the news of oil rigs being idled in the U.S., production in the U.S.between December and May was 15 per cent higher than a year ago, according to research by the TD Bank. Over the same period, Canada's production was only four per cent higher.

Blame the U.S.

So, it's not Blame Canada. It's Blame the U.S.

The demand for Canada's heavy oil remains strong, particularlyfrom refineries in the U.S. Midwest which are set up to refine it.

Two decades ago, before the U.S shale oil boom was even a glimmer in anyone's eye, U.S.refineriesbegan retooling themselves to refine Canadian heavy oil as that was all set to grow. Now, they can't change quickly to now refine the lightoil that is being produced at home.

"Heavy oil is actually getting quite a good price right now, and the reason why is that those heavy barrels are still in demand," said Nicholas Lupick, an energy analyst with AltaCorp Capital.

"It's quite frankly in short supply."

That explains why the price for Western Canada Select is trading at a relative small discount to the U.S. benchmark West Texas Intermediate. The Canadian price for WCS on Friday was just under $61 a barrel.

No quick end to supply glut

TD Bank expects the world oil glut to persist through the end of this year and into 2016, andU.S. oil supplyis expected to slow in the second half of this year.

The number of operating oil rigs south of the border has dropped each week for more than six months, and that shouldfinally start to be reflected in oil production numbers.

However, there is no sign that Saudi Arabia will slow its production.

In fact, the investment bank Goldman Sachs suggested last week that Saudi Arabia will increase its oil output to its maximumlevel of 11 million barrels a day in the second half of this year. Goldman says the goal is to slow oil production growthin nations like Canada, the U.S. and Brazil.

If that does happen, it could cause another drop in prices. The acute U.S. storage problem,in which its Oklahoma tanks were filled to the brim,haseased, at least for the summer driving season. But they could well fill up again in the fall when the summer road trips come to a halt,which would send prices into another tailspin.

At that point it won't matter if we blame the U.S. or Saudi, or ourselves for the oversupply. Every producer will feel the pain.