Historic profits in oilpatch on track to continue as global oil demand set to jump yet again

One by one, oil companies in Canada and around the world are releasing their latest financial results, which show 2022 was the most profitable year in the history of the oilpatch.

Commodity prices have softened to start 2023, but this year is already shaping up to be nearly as rosy as demand for gasoline, diesel and other fuels remains robust and could soar even higher in the months ahead.

There are many ways the sector could spend those hefty returns, but so far companies seem unwilling to waver from their primary strategy of paying down debt and passing on a good chunk of those profits to shareholders.

The industry currently faces a bit of a conundrum, said Jeremy McCrea, managing director of energy research with financial services firm Raymond James: The world's energy consumption is rising, but companies are reluctant to ramp up spending to dramatically boost oil and natural gas production.

Instead, they are enjoying the jumbo profits — while they last.

"I suspect we're going to keep seeing those results going forward," said McCrea, who is based in Calgary. "As these companies see these profits, there's not a motivation to suddenly go and say, 'Let's go spend a bunch of money here now and potentially not make these profits over the next few years.'"

This week, Canadian oilsands heavyweights Suncor Energy and Cenovus Energy became the latest companies to post exorbitant profit levels, as both Calgary-based firms rode towering oil prices throughout last year.

In total, the global industry's profits last year reached about $4 trillion US, according to the International Energy Agency (IEA), compared with an average of $1.5 trillion in recent years.

The organization expects oil consumption to jump in 2023, mainly the result of China's economy revving up as COVID-19 pandemic restrictions are lifted. World consumption will climb by two million barrels a day, the IEA said, to an average of 101.9 million a day.

"Following Beijing's late-2022 about-turn on its stringent anti-COVID restrictions, we expect Chinese oil demand to quickly pick up steam," the agency said in a recent report.

At the same time, Russia's oil production may decline as financial sanctions increase following its invasion of Ukraine on Feb. 24, 2022. Those are a few of the reasons why some in the industry expect oil prices to remain strong this year.

"Our view is that we're still in a constructive pricing environment," Kris Smith, Suncor's interim president and CEO, said during a conference call with analysts. "Obviously, [it's] not going to be what we saw in terms of the records of 2022."

A barrel of West Texas Intermediate, the North American benchmark, traded above $75 US this week, compared with an average of about $95 last year.

The sector is facing pressure to use those profits in a variety of ways. There are calls for increased investment in renewable energy and to take much more meaningful action on climate change by cutting emissions.