With the arrival of 2017, we have more question marks and uncertainty than ever before. I am getting bombarded with questions about how the market will perform in 2017 in comparison to the previous year; when we will finally see the bottom; and how the revitalization of the oil industry will affect the Calgary real estate market. Here is a detailed analysis of the market influencers for the Calgary real estate market and their outlook for 2017.
Today, we will be talking about the Energy Sector:
A soft energy sector has weighed on overall economic conditions across the region. Over the past two years, West Texas Intermediate (WTI) oil prices slid by roughly 60%, causing companies to cut investment spending and reduce operating costs.
These decisions impacted employment throughout the sector. Yet with expected reductions in total oil supply, many in the industry now believe the market has hit bottom. As a result, prices are expected to stabilize between $50 and $55 USD per barrel in 2017.
While oil prices are not high enough to encourage a significant amount of investment growth, a sustained period of price stabilization above $50 USD per barrel is expected to prevent any further contraction in the energy industry.
- In 2017, the energy sector is expected to focus on maintaining a low-cost environment, limiting employment growth opportunities;
- Market access is important for future growth in the Canadian energy sector. Positive momentum can support renewed interest in investment, but long time delays and cost barriers could adversely impact the local market;
- If proposed production cuts made by the Organization of Petroleum Exporting Countries (OPEC) are implemented, this can support price improvements in 2017;
- Potential shifting of US Energy policy could have implications on the Canadian energy sector. While the details for these changes are unknown, they would play an important role in influencing Calgary's economy;
- The Petroleum Services Association of Canada (PSAC) expects drilling activity to improve slightly from 3,950 active and new wells in 2016 to 4,175 in 2017, but will remain 63% below 2014 activity. PSAC also does not expect a significant ramp up of activity until Alberta gains access to global markets and commodity prices improve;
- The Canadian Association of Petroleum Producers (CAPP) expects modest capital spending improvements in Western Canada, rising from $22 billion this year compared to $17.5 billion in 2016. However, oilsands investment is still expected to drop in 2017 to $14 billion, from $16 billion in 2016, which is 60% below the $33 billion spent in 2014.