Canada’s energy sector saw a big bump in profit in the first quarter this year as rising oil prices helped businesses swing from a loss in the previous quarter, according to the latest federal government data.
Operating profit for companies in oil and gas extraction and support services rose by $1.6 billion in the first three months after a loss of $678 million in the fourth quarter of 2018 to $909 million, according to Statistics Canada.
“This increase was attributable to a rise in oil prices,” the report said.
Even though global oil prices have been facing volatility this week — along with the rest of the stock market — on concerns over the impact of the trade war between the United States and China, prices have skyrocketed since the start of the year.
Benchmark U.S. oil — West Texas Intermediate — is up nearly 30 per cent this year to $58.45 US a barrel. It shot up above $60 a barrel in March for the first time in 2019.
Meanwhile, Western Canadian Select oil has jumped more than 45 per cent to over $41 a barrel.
Energy led gains among all industries
The gain in operating profit in the energy sector outpaced all other major Canadian industries in the first quarter.
The manufacturing and real estate sectors were the only other major industries that saw operating profit increase, while it declined for financial, technology, wholesale trade and retail sectors, according to Statistics Canada.
Even within manufacturing, operating profit for petroleum and coal product manufacturers rose 5.6 per cent “due to higher oil prices,” the report said.
But, the government agency also pointed out that inventory levels among oil and gas companies grew in 2018. The Alberta government had introduced mandatory production cuts in December to buoy the price of Canadian oil.
“It seemed that as pipelines and railcars reached their full capacity, producers could not get their crude oil to market and had to put barrels into storage tanks,” the report said. “Ultimately, this translated into higher inventories in the balance sheet of Canadian enterprises in the oil and gas extraction and support activities.”
Operating profit down in Canada
Meanwhile, overall operating profit among all Canadian businesses fell 0.3 per cent to $107 billion in the first quarter from the previous one.
The mixed picture for Canadian businesses, varying by sector, is not surprising — considering many economists expect growth in the first quarter to be subdued.
On the lower end of market consensus, Brian DePratto, senior economist at TD Economics, is forecasting that the Canadian economy grew at an annualized quarterly rate of 0.4 per cent in the first three months — the same as in the previous quarter.
“A very weak export performance, measurement differences, and a downgraded picture of construction activity from Statistics Canada all point to quarterly GDP underperforming the monthly indicators,” he said in a note on Friday.
The first quarter GDP data is scheduled to be released May 31.