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Why Canadian Crude Producers Aren’t Sending More Oil To The U.S.

Canadian oil producers are not rushing to raise supply too much because of the country’s perennial problem with limits to the pipeline takeaway capacity, thus not reaping the benefits of $90 oil prices, according to Capital Economics.

“Due to pipeline capacity constraints, there is little supply response to rising prices, with oil production still stuck near 2018 levels. With export capacity out of their hands, producers have been using their income to pay down debt rather than invest,” Stephen Brown, senior Canada economist at Capital Economics, wrote in a note quoted by Bloomberg on Thursday.

Capital expenditure in the Canadian energy industry is now 0.3 percent of the country’s gross domestic product (GDP), less than one-third of the share of GDP back in 2014.

Canada continues to view its oil and gas industry as a vital part of its economy and exports, and expects that crude oil production will rise by as much as 18 percent by 2030.

Still, Canadian oil producers are slow to react to the rallying oil prices because the pipeline issue is fresh on their minds.

With $90 oil and the oil industry slow to react to these high prices, the immediate impact of the oil rally will be lower purchasing power for consumers because of high gasoline prices, rather than a boost in crude oil production, according to Capital Economics’ Brown. Until the high oil prices feed through the energy industry with higher worker wages, for example, $90 oil could even have a modest negative effect on Canada’s economy because it would eat into consumers’ purchasing power, Brown noted.

This year, drilling activity in Canada is set to exceed the pre-COVID levels of 2019, the Canadian Association of Energy Contractors (CAOEC) said at the end of last year. The number of total jobs is expected to stand at 34,925 this year, an increase of 7,280 jobs in the Canadian oil patch compared to 2021, CAOEC said.

Despite the fact that U.S. President Joe Biden revoked the presidential permit for the Keystone XL pipeline on his first day in office, effectively killing the project, encouraging news came in the autumn of 2021 with the completion of Enbridge’s Line 3 replacement project, the Canadian association said in November.  

By Charles Kennedy for Oilprice.com

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