Oil prices could move higher this year and impact inflation

OPEC and Russia’s decision to cut oil production could lead to higher oil filter prices across the Canadian economy, according to Deloitte’s energy and chemicals chief.

Andrew Botterill, a partner at Deloitte, said when they calculated the outlook for oil prices, they were looking at stable prices.

“When we wrapped up our forecast last week, we noticed some weakness in the market,” Botterill explained. “We’re looking at $75 going forward and getting more moderate going forward.”

OPEC noticed the same thing and met over the weekend to address the issue, Botterill added.

“Then the biggest surprise was the surprise move by OPEC on Sunday,” he continued. “They’ve slashed production, almost 1.5 million barrels a day, and what we’ve seen is that the market has really picked up over the last few days.”

Botterill said we may pay more for fuel this summer than expected as production cuts play out across the system.

“A big factor in inflation is the price of energy, and how much it costs us to move goods, especially in Canada,” Botterill added. “So this move, and the likely price increases that will continue through the end of the year, could put pressure on inflation and consumers’ pockets alike.”

Higher prices should generate strong cash flow for oil producers, allowing them to invest, Botterill said.

Natural gas price forecasts suggest consumers are taking a break.

Botterill said their winter forecast pointed to higher gas prices, but the weather changed that.

“What ended up happening was we had a really soft winter,” Botterill said. “Most of the U.S. is relatively warm, and demand in North America is low. Demand in Europe ends up being relatively low, so they’re safe from this energy crisis.”

It doesn’t take much to change the direction of energy prices, Botterill noted.

“The supply-demand balance is so narrow that it only takes a cold winter or a warm winter to really change some calculus,” he added.

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