Skip to content

What does the oil price rebound mean for Canadian energy?

Stephen Donovan
Stephen Donovan
Customer Success Manager, Refinitiv

The ramp up in oil production in March from Saudi Arabia and Russia, coupled with the drastic decrease in demand from COVID-19, caused energy prices and related equities to decline significantly. With an oil price rebound from late-April lows, what does the second half of 2020 have in store for the Canadian energy sector?


  1. West Texas Intermediate (WTI) oil prices have rebounded from the lows in late April to $40 per barrel. This has boosted stock prices for Canadian energy companies.
  2. Despite the oil price rebound, drilling activity has plummeted in Canada, and decreased CAPEX could lead to price increases over the next 24 months.
  3. Pipelines have faced increased scrutiny. This has caused significant uncertainty about future investment, which could lead to spikes in crude-by-rail and crude-by-sea transport.

For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.

On 20 April, WTI futures contracts traded in negative territory for the first time in their history, closing at -$37.63 per barrel.

Since bottoming, the WTI oil price has rebounded by nearly $80 per barrel, and has been trading near $40 per barrel since the beginning of June, resulting in some of the shut-in production coming back online.

Western Canadian Select (WCS) oil has seen similar rises to WTI, with the spot price at Hardisty up by nearly 300 per cent since the beginning of April, helping to boost the share price for heavy oil producers such as Canadian Natural (CNQ.TO).

Eikon — energy commodities: Access comprehensive, forward-looking energy market intelligence, plus independent, in-depth analysis of the oil, power, gas, and carbon markets

Saudi Aramco also raised its official selling prices (OSP) for heavy crude grades for two consecutive months, which may act as a catalyst for WCS prices.

Figure 1: The WCS price vs. WTI price

The WCS price vs. WTI price. What does the oil price rebound mean for Canadian energy?
Purple: WCS price; Orange: WTI price

Canadian energy sector lags broader market

Despite the oil price rebound, the energy sector has lagged the broader market.

The S&P TSX Energy Sector Index (.GTSX10) remains down 31 per cent year-to-date, compared with the TSX Composite Index (.GSPTSE), which is only down 5 per cent.

More than half of the 24 companies listed in the TSX Energy Sector Index are expected to report negative earnings per share (EPS) in their next fiscal year. One-third expect to report negative EPS in the following fiscal year.

This negative sentiment on forecast earnings suggests that analysts are expecting strong headwinds for Canadian energy companies as they adjust to this new environment.

Figure 2: TSX Energy vs. TSX Composite

S&P TSX Energy (Sector) Index vs TSX Toronto Stock Exchange 300. What does the oil price rebound mean for Canadian energy?
Purple: S&P TSX Energy; Orange: TSX Composite

Listen to Stephen Donovan guest on Episode 10 of The Rundown Tank: Americas Oil, your in-depth weekly briefing on the global and regional dynamics of the oil industry

Decline in active drilling rigs

While crude prices have risen in the short-term, drilling rig activity remains at a 20-year low in Canada.

The rig count data reported by Baker Hughes had 13 active rigs in Canada as of June 26, a decrease of more than 100 rigs from the same period in 2019.

The rig count numbers increased to 32 as of July 17, but this slow rise in drilling activity is in line with the CAPEX reductions announced by energy companies, and suggests that drilling activity could be depressed for at least the next 12 months.

With crude demand expected to increase in the second half of 2020, crude prices may see a boost if demand starts to outpace supply.

Figure 3: Baker Hughes Rig Count  (2001-2020)

Baker Hughes Rig Count. What does the oil price rebound mean for Canadian energy?

Are you prepared for potential risks in your oil and gas sector supply chain? Read the Refinitiv Expert Talk — Drilling Down: Oil And Gas Supply Chain Risks Revealed

The impact on crude-by-rail shipments

Crude-by-rail shipments is also facing headwinds. In April 2020, it hit 156,000 barrels per day, the lowest levels since February 2019.

Figures for May are expected to drop even lower. However, we could see a reversal in this trend in the second half of 2020 due to the challenges facing pipelines. Over the past month alone, there have been three blows dealt to pipeline sector.

The U.S. District Court for the District of Columbia ordered that Energy Transfer LP shut down the Dakota Access Pipeline (DAP) by 5 August.

The DAP is a 570K barrel per day crude pipeline that transports crude from the Bakken in North Dakota to Patoka, Illinois. This pipeline has been in operation since June 2017, and the potential closure of a previously approved, operating pipeline could cause investors to re-think investing in North American infrastructure.

Meanwhile, the U.S. Supreme Court blocked a key environmental permit for the Keystone XL pipeline. This dealt another blow to the 1,900km pipeline that would ship 830K barrels per day of Canadian crude from Alberta to the Gulf Coast.

Keystone XL has faced several setbacks since being announced, and Democratic nominee Joe Biden has declared he would halt the project if elected.

And the Atlantic Coast Pipeline, which was set to transport natural gas through North Carolina and Virginia, was cancelled due to projected cost overruns, project execution risk, and legal risk.

With these setbacks, crude-by-rail shipments should rise, and we may see an increase in waterborne transportation as companies look to get their product to market.

Cenovus Energy (CVE.TO) announced earlier this month that it would ship crude from Burnaby, BC to Saint John, NB via the Panama Canal. The nearly 12,000km journey is significantly longer than using a pipeline or railcar, and shows the innovative approach companies will take to get their product to market.

Refinitiv is now tracking the estimated cost for this journey for both Panamax (TD-VAN1-SJB) and Suexmax (TD-VAN2-SJB) vessels, seen in Figure 4.

Figure 4: Crude oil transportation costs: Burnaby to Saint John (US$)

Figure 4: Crude oil transportation costs: Burnaby to Saint John (US$)

Oil price rebound brings hope to Canadian energy sector

The dynamics of the energy industry change at a rapid pace, and despite having an extremely volatile start to the year, fundamentals have shown signs of recovering, and we can start to see some light at the end of the tunnel for the Canadian energy sector.

Watch: Refinitiv Perspectives Livestream — Oil Pricing: Which way will it go?

Eikon — energy commodities: Access comprehensive, forward-looking energy market intelligence, plus independent, in-depth analysis of the oil, power, gas, and carbon markets


Refinitiv is now on Telegram! Receive daily updates of critical and timely market analysis to your mobile. Subscribe to t.me/Refinitiv

Subscribe to the Refinitiv Perspectives Weekly Newsletter