Box 1: The outlook for investment and production in the oil and gas sector has improved
Between May 7 and 21, 2026, Bank of Canada staff held consultations in Calgary with industry leaders and experts from across the oil and gas sector, including producers, pipeline operators, energy service providers and analysts. Prices for West Texas Intermediate (WTI) crude oil averaged US$101 per barrel over the consultation period, compared with an average of US$65 per barrel between February 1 and 27, 2026, before the onset of the war in the Middle East.
Firms expect WTI prices to soften in line with financial markets’ expectations for future oil prices. However, prices are anticipated to remain above pre-war expectations because of ongoing supply disruptions and heightened geopolitical risks. Pricing for Western Canadian Select (WCS), a key Canadian heavy sour blend of crude oil, is expected to reflect offsetting forces over the medium term. Growing oil sands production is weighing on WCS prices. In addition, renewed competition at US Gulf Coast refineries from Venezuelan heavy crude, which is chemically similar to Canadian heavy crude, is likely to place further downward pressure on WCS prices. However, this pressure should be partly offset by increased shipments through the Trans Mountain Expansion pipeline to Asia, where demand for heavy crude remains strong.
Investment and production plans for publicly traded firms in the oil and gas sector have been revised up since December (Chart 1-A and Chart 1-B). With WTI prices expected to hover around US$70 by the end of the year, as financial markets suggest, most conventional and oil sands producers can increase capital expenditures and production while meeting other priorities, such as paying dividends and reducing debt. However, oil sands producers tend to remain cautious about expansions because the long life cycles of their projects make their operations less sensitive to short-term price fluctuations. Still, some are seeking to benefit from higher prices by operating existing assets more intensively, with only marginal additions to capital budgets. In contrast, conventional oil producers have responded more quickly to elevated oil prices than other producers, as their shorter production cycles allow them to capitalize on periods of elevated prices.
Persistently low natural gas prices in North America are leading natural gas producers to scale back investment in gas-intensive infrastructure, resulting in downward revisions to investment plans compared with December 2025. At the same time, natural gas production continues to be supported by the start-up of LNG Canada Phase 1 and demand from oil sands producers for natural gas liquids. Participants in consultations expressed growing optimism about the long-term outlook for natural gas because they expect several proposed liquefied natural gas projects to proceed, expanding access to global markets. Canadian projects are seen as cost-competitive with US counterparts due to West Coast access, which reduces transport costs to Asia.
