August 1, 2018 7:03 pm

Canada’s oil industry led economic growth in May — but will it continue?

FILE - Global News
A A

As Canada’s GDP grew in May, the oil sector led the way with a 2.5 per cent increase.

READ MORE: Canadian economy grew 0.5% in May, prompting talk of a fall rate hike

Oil has been moving up steadily in the past year, reaching prices not seen since 2014, offering more reprieve to the beleaguered market.

But is this growth going to continue and has the oil industry gotten out of its rut?

Not necessarily, economists say.

“Over the second half of the year, ​we’re going to get some volatility in this component,” RBC senior economist Josh Nye told Global News.

“There’s a shutdown at a major oil sands producer in July that’s taking a significant share of barrels out of production for all of July and then that’s going to ramp up slowly in August.”

WATCH: Reality check: Are Canadian oil and gas prices really rebounding?


Story continues below

While it’s likely growth that big is a “one-off shock,” the industry is still expected to maintain a more sustainable growth rate of around 1.5 per cent, TD economists say.

“Production outages in the energy sector and potential tariff impacts should act as headwinds to growth in the coming months, holding the pace of growth to a more sustainable 1.5% to 2% range over the latter part of the year and into 2019,” Brian DePratto, senior economist at TD Bank, wrote in an update.

But he warned about coming volatility:

“This strength won’t persist near term simply because of that temporary factor. Looking at your longer term outlook in our equity analyst who cover the oil and gas sector are expecting Canadian oil production will continue to increase generally,” Nye said.

Still, Canada’s oil and gas industry has been doing well over the past year.

WATCH: Rising oil boosting Alberta’s economy

“You know, if you look at a longer-term basis, [oil and gas has] definitely been trending higher,” Nye explained.

Along with seasonal things like the production issues mentioned above, there are still concerns about longer-term issues like pipeline politics that could affect growth.

“Then you have these temporary price discounts that we get on Canadian production because of pipeline capacity constraints and having to rely more on rail transportation, which is more expensive,” Nye explained.

“That will continue in the near term until additional infrastructure is put in place. But it doesn’t necessarily limit the amount of oil that we can export at this point.”

Instead, it has shown less infrastructure investment, specifically in 2015 and 2016, Nye explained. But RBC tracking of what companies are saying points to further investment over the next couple of years.

READ MORE: Cracks in Canada’s job market starting to show, finance minister warned

With Canada’s energy sector (including other energy like hydroelectricity) accounting for almost 10 per cent of Canada’s GDP, according to the government, a rise or fall in this sector can impact the economy. The energy sector employs 4.9 per cent of people — though most of the jobs are in construction, which is considered indirectly connected to the sector.

 

 

© 2018 Global News, a division of Corus Entertainment Inc.

Report an error

Comments

Want to discuss? Please read our Commenting Policy first.

Global News