The pandemic has thrown up many surprises for the Canadian economy, the latest of which is the speed at which oil production has rebounded. Even though global fuel demand remains weak amid ongoing global travel restrictions, the Canada Energy Regulator’s (CER) latest estimates show that domestic production fully recovered in December, with 500,000 barrels per day of extra output compared to what the CER had previously forecast. The impressive turnaround reflects both the rebound in oil prices, with WTI now back near its pre-pandemic level of $60 per barrel, and the fact that Canadian firms have captured market share in the US, where domestic oil production has barely rebounded at all. The swift recovery in Canadian production helps to explain why, despite the tightening of the coronavirus restrictions, the preliminary estimate showed that GDP rose by 0.4% m/m in December. With other commodity prices also rebounding, activity in the natural resources sector will help to drive a modest rise in GDP in the first quarter, even though the coronavirus restrictions were tightened further. The rise in production and the surge in oil exports to the US in January even suggest there are upside risks to both the consensus forecast that GDP will contract by 1.0% annualised in the first quarter and our own more positive forecast for a 1% expansion.
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