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There are always interesting things going on in the world of oil production and prices, but the current list is particularly relevant to this key component of both Alberta’s and Canada’s economic performance. Here are five evolving developments to watch:
1) Production is up – The amount of oil being extracted in Alberta has been on the rise for many years as major oil sands projects were developed. Getting the oil to market has been a challenge, but the pipeline system has expanded enough that output has been able to go from around 3 million barrels per day 10 years ago to well over 4 million today. The completion of the Trans Mountain Expansion Project in 2024 that tripled the pipeline’s capacity from 300,000 barrels per day to 890,000 was key to this growth.
2) More pipelines coming? – Brownfield enhancements to the oil transportation system should allow for production to keep rising, but another major burst of growth will require something like the proposed West Coast Pipeline. It’s far from a done deal, but with key milestones in the decision-making process coming this fall, the idea of another oil pipeline to the B.C. coast has gone from a pipe dream to a real possibility.
Also in play is the resurrection of the Keystone XL pipeline project. Proposed back in 2008, the pipeline was meant to carry oil from Alberta to the U.S. Construction finally started in 2020, but President Biden revoked a key permit in January 2021 and the project was cancelled by the proponent a few months later. Then in 2025, both President Trump and Prime Minister Carney expressed interest in a revived Keystone XL. We’ve since learned that a Canadian company (South Bow) is partnering with a U.S. company (Bridger Pipeline) on a proposal to build a pipeline from Alberta to Wyoming called the Prairie Connector that would use some of the already-assembled Keystone XL pipe. A decision from South Bow about whether to proceed is slated for mid-2027.
A pipeline running from Alberta to Ontario has also been proposed, dubbed the Northern Shield Energy Corridor.
3) Prices are up – As I write this, the price of a barrel of West Texas Intermediate crude oil was sitting at just under US$100, with the escalation of conflict in the Middle East acting as the main driver of the elevated price. This cuts both ways for Canada and Alberta. The increase will hurt as it flows through to gasoline prices and overall inflation. As a major exporter of oil, the higher prices means more nominal income for producers and more tax and royalty revenue for governments.
When Israel and the U.S. attacked Iran at the end of February, the fear was that oil prices were going to rise above US$100 and stay there as long as the conflict continued. The drawdown of strategic reserves, some oil still getting out of the Persian Gulf, and reduced demand from China are three key reasons why this didn’t happen, but the longer the conflict lasts, the greater the risk that higher prices will get stickier. If that happens, inflation will get worse and central banks will be under pressure to raise borrowing costs.
4) The return of Venezuela? – The idea that production from Venezuela’s vast oil reserves would return to levels seen before it collapsed a decade ago resurfaced in the wake of the capture of Nicolás Maduro by the U.S. in early January. Reality soon set in regarding the sorry state of Venezuela’s oil industry and the risk associated with investing in its revival. Could Venezuelan oil become a major competitor to Canadian oil in the U.S. market? Potentially, but it would take years for this to happen.
Then, at the end of August, President Trump posted on social media that he had made “THE BIGGEST OIL DEAL IN WORLD HISTORY” in Venezuela. This has, once again, raised the possibility that Canada will soon be having to deal with competition from large amounts of Venezuelan oil flowing into the U.S. So far, however, details of the agreement reached between the U.S. and Venezuela have not been released and the same challenges remain in place.
With that said, the idea is clearly not going away and Canada needs to be proactive in terms of preparing for a day when Venezuela is truly back in the game.
5) Tariff exempt – As the trade war with the U.S. has heated up, this has led to renewed calls by some to use U.S. reliance on Canadian energy as leverage. Whether or not this is a good or bad tactical move, it highlights one of the most important aspects of the trade war so far: Canadian energy has not been a major target of the Trump administration. Energy received a lower rate of 10% when the fentanyl tariffs were announced and, as a CUSMA-compliant product, is essentially tariff-free at this time. As Alberta’s and Canada’s largest export category, energy is something we will want to keep that way.
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OIL UPDATE – Five Things to Watch – Rob Roach, ATB ECONOMICS