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Upward grind in crude prices expected to end

ANALYSIS: Oil has been trading just above US$33 a barrel on Tuesday. On Monday, crude was up more than $2, after the International Energy Agency said U.S. shale oil production could fall by 600,000 barrels day this year and another 200,000 bpd in 2017.

But the group, which represents energy-consuming countries, warned that "anybody who believes that we have seen the last of rising [light, tight oil] production in the United States should think again; by the end of our forecast in 2021, total U.S. liquids production will have increased by a net 1.3 million bpd compared to 2015."

And on our Commodities show Monday, regular guest Jerrod Kitt of the Linn Group told us that investors who have ridden crude up from less than US$30 should be “pretty quick to take profits on the next two to three dollars up.”

Global producers may be poised to reach a deal on freezing output, he warned, but “what they’re saying is they’re going to maintain supply at record high levels. That’s not particularly conducive to higher prices in the short run.”

Saskatchewan Premier Brad Wall’s called on Ottawa last week to pay out $156 million to clean old energy wells, employing laid-off oil workers. The premier joined us on Commodities on Friday. 

We had a follow-up on Commodities today. Rene Amirault, president and CEO of Secure Energy Services (SES.TO), cautioned that while work remediating old sites would be welcome it wouldn’t be big enough to provide a substantial boost to the energy services sector.

“It would be a small percentage of the overall revenue that a company would be able to charge out… it could be as low at $25,000 per well.”

Speaking of cleanups, concerns over environmental damage have led to reported opposition to some Canadian mining projects abroad, especially in central America.

On last Friday’s Commodities show, we were joined by Shin Imai, a professor at Osgoode Hall Law School, who monitors disputes involving Canadian resource companies. The Liberal government is leaving intact the office of a “counsellor” in this area who seeks on voluntary participation by mining companies to resolve conflict.

Prof. Imai says exhorting companies to follow guidelines isn’t enough. He uses the analogy of a busy highway: “Imagine it was governed by a voluntary code and there was no police or enforcement… there are drunk drivers, and encouragement doesn’t work necessarily.”

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