Output cuts loom as crude tumbles

Canadian oil companies face another round of output cuts as the price of crude sinks below breakeven levels for many producers.

Operating in one of the most expensive regions in the world, oil producers are cutting spending or, in the worst cases, halting production.

The price rout is being compounded by concerns about growth in China and emerging economies as well as interest rates and equity markets, according to Martin King, vice-president of research at First Energy Capital Corp. in Calgary.

“The latest price moves would seem to suggest supply shutins are needed and that future capex should be trimmed to the bone and beyond,” King said.

The Canadian division of China Petroleum & Chemical Corp. may shut in production, Brian Tuffs, head of the Beijing-based company’s Canadian operations, said in Calgary Tuesday. The company has cut jobs and slashed capital spending to weather falling oil prices.

“We’re looking at this on a caseby-case basis,” Tuffs said.

Crude is down more than 25 per cent this year amid volatility in Chinese markets and speculation that the removal of restrictions that capped Iran’s oil sales will help prolong a worldwide glut. Credit Suisse Group AG chief investment officer Michael Strobaek expects crude to reach a low of $25 a barrel.

In Canada, “we can clearly see that no companies are able to cover all cash outflows at current oil prices,” National Bank of Canada analysts Kyle Preston, Dan Payne and Brian Milne said in a note.

In 2015, Baytex Energy Corp. shut in about 2,400 barrels a day of production while Canadian Natural Resources Ltd halted 5,700 barrels a day of conventional output.

Oilsands operations are unlikely to experience shut-ins because of the high costs of restarting them, King said.