Box 1: Low oil prices are weighing on sentiment in the oil and gas sector
In November 2025, Bank of Canada staff held consultations in Calgary with leaders from the oil and gas sector and industry experts. Participants included producers of natural gas, conventional oil and crude oil from oil sands as well as pipeline and energy service providers.
Firms anticipate oil prices will remain at current levels through 2026
Firms expect oversupply of global oil to keep the price of West Texas Intermediate (WTI) around US$60 per barrel in 2026, with a gradual increase toward US$66 per barrel over the next two to three years. Supported by the Trans Mountain Expansion (TMX) pipeline, in 2025 the price differential between WTI and Western Canadian Select (WCS) narrowed to near US$12 for most of the year. It is expected to stay around that level over the next one to two years. Firms believe that current and proposed capacity improvement projects for existing pipelines will help support a narrower spread. Several participants noted that improved market access through TMX has increased the use of Canadian heavy oil in petrochemical production in Asia, supporting WCS pricing.
The Alberta Energy Company price (AECO-C)—a Canadian benchmark for natural gas prices—is expected to stay around Can$2.50 per gigajoule in 2026, supported by demand from LNG Canada Phase 1 (a liquefied natural gas [LNG] export terminal in British Columbia). Many firms remain optimistic about the long-term outlook for natural gas. Some see it as the fuel of the future, particularly as developing countries transition from coal to gas. Over the short term in 2026, LNG exports and strong demand from oil sands producers for natural gas condensate continue to support the production outlook for natural gas producers.
Conventional oil producers face increased pressure, while most oil sands projects remain viable
Low oil prices are weighing on sentiment, prompting firms to streamline production and tighten cost structures. This is especially true for conventional oil producers, who must reinvest and drill new wells frequently to maintain production and who require break-even prices to average around US$57 per barrel for WTI. Those producing heavy oil sold at WCS prices rather than WTI prices are more sensitive to lower prices and are likely to curtail drilling programs within weeks in response to price weakness.
Meanwhile, oil sands projects have an average break-even price of about US$50 per barrel for WTI, based on Bank staff calculations and industry estimates. As a result, oil sands production, which accounts for the majority of Canada’s crude oil production, generally remains viable at currently expected price levels. The resilience of oil sands projects reflects their economies of scale, the long-term nature of operations, available TMX pipeline capacity and a narrower WTI–WCS price differential.
Capital expenditures are expected to decline in 2026
Regarding plans for 2026, recent announcements by firms in the sector indicate a 1.7% decline in nominal capital expenditures (Chart 1-A). Despite a reduction in investment plans, industry production is expected to rise. This is driven mainly by natural gas and oil sands output, where efficiency gains—partly due to consolidation—and available export pipeline capacity continue to support higher production.
