Energy sector poised for rebound in 2021, Deloitte predicts

A report from Deloitte Canada says there's reason to believe the energy sector is poised for a rebound in 2021 as demand starts to exceed supply.

Deloitte's fourth quarter oil and gas forecast says following a challenging 2020, during which the pandemic drove down demand for crude, curtailed production and storage levels soared, the coming year looks a lot brighter for Alberta's key industry.

"Although crude oil markets are likely to remain relatively flat in the near term, we started seeing prices increase somewhat toward the end of 2020 and expect that to continue as economies begin to reopen and recover from the effects of the pandemic," said Andrew Botterill, an oil and gas leader at the global business consulting firm.

The report says the price differential between West Texas Intermediate (WTI) and Western Canadian Select was narrower in 2020 than the historical average due to more stable demand from refineries in the United States for Canadian heavy oil.

However, the authors expect the differential to widen over the next five years to about $15 US per barrel,because of the additional costs of shipping by rail.

"Feedstock supply to U.S. refineries from other heavy oil-producing nations, including Mexico and Venezuela, has diminished in recent years, providing yet more opportunity for Canadian heavy oil to fill the gap," the report said.

Botterill says the rollout of COVID-19 vaccines is also generating optimism worldwide about the return to pre-pandemic consumption patterns, and that should stimulate investment.

"We do believe the back half of 2021 is when we're going to see lower restrictions, see those vaccines start to take hold in our economies and maybe see things start to open up," he said.

International crude oil prices have been relatively level over the last few months and Deloitte is forecasting the price of WTI crude oil will average $46 US per barrel in 2021, a level that Botterill says will take some pressure off companies.

"It's at a point where it allows companies the flexibility to look at spending money again, and getting rigs out and trying to spend some capital," he said.

Deloitte sees the price of WTI rising to $54 US in 2022 and reaching $61 US by 2024.

The report also notes that prices for natural gas rose in 2020, with prices at their strongest in years, up 25 per cent year-over-year as Canadian producers increased shipments to the United States and eastern Canadian markets and accessed storage in summer months.

Thehigher prices have boosted winter drilling schedules and increased production volumes above those of one year ago, the report said.