As the global oil market grapples with a tumultuous landscape marked by fluctuating prices and geopolitical tensions, Canada’s largest oil and gas producer, Canadian Natural Resources Ltd. (CNRL), is navigating these challenges with a strategic approach. In the first quarter of 2025, CNRL reported a robust performance, repaying $1.4 billion in debt and achieving an impressive production average of more than 1.58 million barrels of oil equivalent per day. This achievement was bolstered by the company’s US$6-billion acquisition of Chevron Canada Ltd.’s Alberta assets the previous year.
Despite these strong results, CNRL faces uncertainty due to declining oil prices, which have dropped significantly following the implementation of global tariffs by U.S. President Donald Trump. In light of this, CNRL has trimmed its capital budget for the remainder of 2025 by $100 million, bringing it down to $6.05 billion. However, the company reaffirmed its full-year production target range of 1.51 million to 1.56 million barrels of oil equivalent per day.
CNRL President Scott Stauth emphasized the company’s proactive approach to managing cash flows, stating, “Every week, we monitor our cash flows at our management committee to stay on top (of things), and if we have to make any changes to our capital program, we can usually make that pretty quickly.” He did not specify whether the deteriorating oil prices would lead to further cuts in capital expenditure or reduced activity in conventional operations.
Other Canadian oil companies are also feeling the pressure. Cenovus Energy Inc. indicated that its capital spending would fall below $5 billion in 2026, while Suncor Energy Inc. anticipates a decrease in capital spending to around $5.7 billion, down from $6.1 billion this year. Baytex Energy Corp. has paused share buybacks to focus on debt reduction, projecting its capital spending and production to trend towards the lower end of its guidance for 2025.
The U.S. Energy Information Administration recently revised its forecast for benchmark West Texas Intermediate (WTI) crude prices, predicting they would average below $62 per barrel this year and around $55 per barrel in 2026. CNRL noted that its break-even WTI price remains in the low-to-mid $40 per barrel range, indicating that continued price drops could significantly impact profitability.
In the broader context, oil prices have been fluctuating due to various factors, including trade tensions between the U.S. and China. On May 9, 2025, oil prices saw a slight increase as Brent crude rose 23 cents to $63.07 per barrel, while U.S. WTI crude was up 21 cents at $60.12 per barrel. This uptick followed a nearly 3% rise in the previous session, amid signs of easing trade tensions and the announcement of a new trade deal between the U.S. and Britain.
U.S. Treasury Secretary Scott Bessent is set to meet with China’s Vice Premier He Lifeng in Switzerland on May 10 to discuss resolving ongoing trade disputes that have affected crude oil consumption. Analysts suggest that if formal trade negotiations commence and tariffs are reduced, crude prices could potentially rise by $2 to $3 per barrel.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) is facing its own challenges. A recent survey indicated that OPEC oil output edged lower in April, as production declines in Libya, Venezuela, and Iraq outweighed planned increases. The cartel has expressed intentions to boost production, which could further pressure oil prices.
In an analysis of the current market dynamics, Waqar Syed, head of equity research energy services at ATB Capital Markets, pointed out the dual impact of tariffs and falling oil prices on the Canadian oil sector. He noted, “You have all this oil price impact on one hand, while your tariffs are going to raise input costs. So companies can get squeezed a little bit on the margin side.” He emphasized that the continuing decrease in WTI prices poses a more significant threat to the industry than tariffs.
Looking ahead, Syed projected that crude oil prices would eventually stabilize between $58 and $60 per barrel, although he warned that prices could plummet as low as $40 per barrel if market conditions do not improve. He explained that prices below $60 typically lead to cuts in drilling activity, which has already begun in the U.S. market.
The ongoing U.S.-China trade conflict is also contributing to market volatility, with concerns about a possible recession in the U.S. and economic struggles in China. Syed noted, “If you have a recession in the U.S., you have China slowing down materially as well. If that slows down, that number continues to get revised down.” He cautioned that the current imbalance in supply and demand necessitates a reevaluation of OPEC’s production plans.
As the Canadian oil industry adapts to these shifting dynamics, natural gas is emerging as a more stable alternative. Syed pointed out that gas has performed better due to its relative insulation from global volatility, contrasting it with the oil sector, which is heavily influenced by external factors like tariffs and OPEC production decisions.
In conclusion, the Canadian oil sector is at a crossroads, facing the dual challenges of declining prices and geopolitical tensions. Companies are adjusting their strategies to navigate this uncertain landscape, with an eye toward maintaining profitability while managing capital expenditures. As the situation evolves, industry leaders will need to remain vigilant and adaptable to ensure their long-term success.
