Oil patch earnings to plummet?

(by Matt Hartley) - Profit among Canada’s oil industry is expected to fall nearly 25 per cent this year from its 2006 peak, according to an outlook by the Conference Board of Canada.

Total profit this year is forecast to fall from $16.7-billion to around $12.6-billion, a tally that remains high by historical standards, said Louis Thériault, director of the Canadian Industrial Outlook Service. However, gains in production and improved productivity should drive profit higher again starting in 2008.

The findings appear in the Conference Board’s Canadian Industrial Outlook: Canada’s Oil Extraction Industry - Summer 2007 report. It was released Wednesday, the same day crude oil prices rallied to a record $78.76 (U.S.) a barrel in New York. The price of oil has surged in recent years, and is up 4 per cent from a year ago.

Energy companies are running into cost increases more frequently in Canada’s oil patch, the report said. A shortage of available workers and materials in Alberta is pushing the costs of new investment projects to “near-prohibitive levels.”

Crude oil production is expected to rise 7.5 per cent in 2007, due in part to a rebound in conventional production as well as further development in the oil sands.

As part of its analysis, the Conference Board predicts that global demand for crude oil is expected to outpace global supply over the forecast period. Global demand is forecast to reach 93.5 mmbd by 2011, a 2.2 per cent average growth rate from 2008 to 2011, due largely to increased demand from emerging economies, which are expected to expand their demand by 3.6 per cent per year over the same period.

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