Analysts say 2024 will be a year of weaker oil prices, something that should bring some relief to weary consumers after two years of soaring energy costs.

On Monday, the benchmark West Texas Intermediate crude price continued what has been its recent downward slide to land around US$71 a barrel.

Oil prices were volatile in 2023, and have already declined approximately 16 per cent since October due to a combination of factors including growing global supply and slowing demand.

Those trends are likely to continue, many analysts believe, putting further downward pressure on energy prices in the year ahead.

A new report by Deloitte Canada is forecasting WTI to average US$72 for the year ahead. That's more than seven per cent below 2023's average, and a whopping 29 per cent below 2022, when Russia's invasion of Ukraine caused oil prices to spike.

The lower prices should spell relief for consumers. Higher energy prices, particularly for gasoline, have been a major factor behind increased inflation.

"That is the good news here. We are all consumers in some form or fashion, and these softer prices will help heat our homes and fill our vehicles," said Andrew Botterill, Deloitte Canada's national leader for oil, gas and chemicals.

He added natural gas prices also continue to be soft, with the average annual price for the Alberta benchmark AECO forecast to be $2.35, significantly lower than the $5.75 it averaged in 2022.

The lower prices, however, may be less welcome by Canada's oil and gas industry. Many Canadian companies reaped record profits in 2022 as commodity prices soared, and have been working to expand their production in the face of rising global demand.

Weaker oil prices should bring some relief to consumers in 2024, analysts say. #OilPrices #OilandGas #EnergyPrices

"Canada alone is expected to provide around 200,000 barrels of additional (oil) supply (in 2024)," said Sara Vakhshouri, founder and president of energy consulting firm SVB Energy International, in an email.

Vakhshouri predicts WTI will fall within the range of US$70-$80 this year.

Another forecast, by ATB Financial, is calling for US$75 oil this year.

"It will be weaker (than last year), but I don't necessarily think it will be significantly weaker," said Amir Arif, ATB's managing director for institutional research.

"Oil demand is still growing, it's just growing at a slower pace in '24 versus '23 and '22."

Canada's oil and gas sector will still be profitable in the US$70-range, Arif said, but it will not have the excess cash to return to shareholders that it has had in recent years.

"The amount of buybacks that some of these companies will be able to do, or the special dividends that they'll be able to make in '24 will probably be lower than '23," he said.

Botterill said lower oil prices mean Canadian oil producers will likely be cautious this year with their capital spending.

"I think we might see them a little bit more guarded with their budgets, recognizing that they don't want to be bringing too many volumes on and softening prices much," he said.

"I think we might see some trepidation, or at least some caution, when it comes to their budgets this year."

For the Canadian industry, a highlight of 2024 was expected to be the anticipated startup of the Trans Mountain pipeline expansion in the first quarter.

However, the project — which will improve export capacity for Canadian oil companies — has been plagued by construction difficulties. The Crown corporation building the project recently suggested its completion could be delayed by up to two years if the regulator doesn't grant the company's request for a pipeline variance.

When the Trans Mountain project does come online, it is expected to help reduce the Western Canada Select differential — the price discount that Canadian oil companies typically take on their product, in part due to a lack of market access.

"We've been talking about Trans Mountain for a long time," Botterill said.

"We all thought it was right on the goal line here, but it seems like it might take a little bit more time to get that done."

This report by The Canadian Press was first published Jan. 8, 2024.

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