A combination of factors will boost oil prices through 2026, which bodes well for the Canadian energy sector
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If there’s a recession, oil prices will move down slightly, but the supply versus demand gap is so large that it’s unlikely that prices will go below US$90 a barrel, or, at best, US$80. It won’t hit the lows seen in the past cycle. There is also still significant pent-up demand from the past two years, resulting in rising gas prices being absorbed more easily. One of the measures to consider is the U.S. household debt-to-service ratio. When compared with 2008-09, the current ratio is very small, especially for the bottom 90 per cent of the economy. In 2008, the ratio was well above 13 per cent, according to U.S. Federal Reserve. It’s about 9.5 percent now, so the current debt burden is much lower.
The year-over-year growth in China could be enormous. Although Chinese demand was down by more than a million barrels a day in April and May this year, by October we expect President Xi Jinping to start to ease more of the zero-COVID-19 measures after the 20th Party Congress that will bring workers back to the factories and further drive demand.
Global energy companies are currently investing about US$400-billion into sustaining production, according to Energy Aspects estimates. To hold production flat at 100,000 barrels a day, we need a minimum of US$550-billion in investment, much of which will be absorbed by cost inflation. So, the shortfall is about 30 per cent.
But global energy usage continues to rise while developed economies pull away from fossil fuels. There is not nearly enough investment in alternative energy solutions. The national oil companies are starting to do more, but it won’t be until 2027 that some of the bigger projects are online and, in that time, demand will continue to grow, keeping prices strong.
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