CALGARY — The latest outlook from the International Energy Agency shows little sign that the oil supply glut hitting prices and Canada's oil producers will let up soon.
The November report says global demand for oil is forecast to increase by 1.2 million barrels a day next year, down from an increase of 1.8 million barrels a day this year, as the short-term boost from low oil prices fades and "problematic'' economic conditions in countries like China persist.
Meanwhile stockpiles of oil in OECD countries were at a record high of nearly three billion barrels at the end of September despite the low prices, giving an "unprecedented buffer'' against geopolitical shocks or unexpected supply disruptions, the IEA says.
The latest outlook points to a continued slowing of Canadian oilsands production growth and the need for more cost-cutting, an analyst says.
Martin Pelletier, portfolio manager at TriVest Wealth Counsel, said more supply cuts are needed before the market can turn around.
"We have not seen supply response yet, especially among non-OPEC nations, and as a result there is still a supply-demand disconnect and we're seeing that reflected in record-high inventory levels'' Pelletier said.
But he said the growth in demand this year, which the IEA says should reach 95.5 million barrels a day this quarter, was one of the few positives in the report "among the plethora of darkness and negative overtones that's sending oil down to $40.''
Canada's petroleum producers have been writing down assets by the billions in recent quarters as they adjust to oil prices below US$50 a barrel compared with more than double that last year.
The low oil prices have had little effect on short-term production growth in Canada's oilsands, but the IEA forecasts non-OPEC production to drop by 600,000 barrels a day thanks largely to the drop in production from shale oil in the United States.
Pelletier said he expects to see more writedowns and if prices stay down some companies could file for bankruptcy.
Greg Stringham, vice-president of oilsands and markets at the Canadian Association of Petroleum Producers, said growth in the oilsands over the next four years won't be as affected because investments have already been committed, but after that growth will slow.
"We're already seeing that there's been lots of projects that have been shelved and suspended. So then the growth profile slows down, so it's still growing but at a slower pace,'' Stringham said.
He said Canada needs to compete with U.S. tight oil producers who have ramped up oil production from shale formations in recent years.
"Our biggest competitor is going to be tight oil,'' said Stringham. "We need to reduce our costs so that when this does turn around we can be in the range of where tight oil economics are.''
The IEA report forecasts U.S. tight oil production, which has been the driver of non-OPEC growth, will decline by 600,000 barrels next year.
The North American benchmark oil price was trading slightly above US$40 a barrel Friday for its lowest price since August.