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Canada’s Oil Sector Set To Book US$7.6B Losses In 2016

Oil workers

For the first time ever, Canada’s oil extraction industry is expected to book in 2016 a second consecutive year of massive pre-tax losses of around US$7.6 billion (CAD$10 billion), think-tank The Conference Board of Canada said on Tuesday.

Last year, Canada’s oil industry had amassed US$8.365 billion in pre-tax losses.

This year’s expected losses will reflect setbacks in revenues coupled with a slower-than-predicted pace of cost cutting, the board said.

“Canadian oil producers continue to be challenged by the extended battle for market-share that has kept global crude prices stubbornly low,” Carlos A. Murillo, economist at The Conference Board of Canada, said in the press release.

Canada’s oil industry is expected to return to profits in the second half of next year, with crude prices gradually recovering in a more balanced market, according to The Conference Board of Canada.

Until then, however, the oil sector will suffer and continue to slash investments. Lower profits have resulted in investment cuts of nearly US$19 billion last year, and capex is expected lower in 2016 and 2017 as well. Canada’s oil producers will have slashed a total of US$28.9 billion in investment between 2014 and 2017.

Subdued investment will have a ripple effect on production, which is expected to shrink by 1 percent this year – following a slight rise last year – on the back of lower capex and output disruptions from the Fort McMurray wildfires this past May.

Beyond the short-term projections, however, Canada’s oil sands are expected to enjoy a lot of investment over the next ten years. Still, the lack of pipelines may be holding back the industry.

On the global markets, The Conference Board of Canada expects oil prices to rise steadily to US$67 by 2020 in a more balanced market. However, high inventory levels, an uncertain global economic outlook, and OPEC possibly not sticking to its agreement to cut production continue to weigh on the crude price outlook.

By Tsvetana Paraskova for Oilprice.com

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