The M&E Dispatch // 126

Hello Everyone,

The oil market is telling a story this week that Western Canada should be listening to very carefully.

Brent crude slipped to $63.20 per barrel on Tuesday, down 12.6% compared to this time last year. WTI is hovering around $58.74. Both benchmarks posted their biggest weekly loss since early October last week, dropping approximately 3%.

And while Prime Minister Mark Carney and Alberta Premier Danielle Smith finalize what's being called a "historic" memorandum of understanding on energy, expected to be announced in Calgary on Thursday, JPMorgan released a forecast that should sober every conversation about new pipeline economics.

The bank is projecting that Brent could fall below $60 in 2026, slip into the low $50s by Q4, and if market imbalances aren't addressed through production cuts, crash into the $30s by the end of 2027.

The Ukraine Variable

The immediate pressure on prices comes from progress, or at least the appearance of progress, on a Russia-Ukraine peace deal. U.S.-brokered talks have advanced, with reports indicating the original 28-point plan has been reduced to 19 points to make it more palatable to Kyiv. President Donald Trump set a Thursday deadline for an agreement, though U.S. Secretary of State Marco Rubio suggested the timeline could be flexible.

Markets don't care about the human cost or the fairness of territorial concessions. They care about what happens to sanctioned Russian barrels if a deal materializes. Russia was the second-largest crude oil producer globally after the United States in 2024, according to the U.S. Energy Information Administration. A peace agreement could roll back sanctions that have curbed Russian oil exports, flooding an already oversupplied market.

West Texas Intermediate settled at $58.84 on Monday, November 24, snapping a three-day losing streak. But the respite was brief. By Tuesday, WTI had edged back down as traders weighed the prospect of additional Russian supply hitting global markets.

"The sell-off was triggered mainly by President Trump's forceful push for a Russia-Ukraine peace deal, which markets see as a fast track to unlocking substantial Russian supply," IG analyst Tony Sycamore wrote.

The Structural Problem

But the Ukraine peace discount is just the visible tremor. The deeper structural problem is supply growth dramatically outpacing demand.

JPMorgan released updated oil forecasts on November 24, maintaining its 2026 Brent projection at $58 per barrel and 2027 at $57. The bank projects WTI at $54 in 2026 and $53 in 2027. These forecasts assume that producers will voluntarily cut output to stabilize prices, a significant assumption in a world where U.S. policy under Trump favors maximizing domestic production and OPEC+ cohesion continues to fray.

Global oil demand is expected to expand by 0.9 million barrels per day in 2025, reaching 105.5 million bpd, with similar growth in 2026 and acceleration to 1.2 million bpd in 2027. That sounds healthy until you look at supply.

Global oil supply is projected to grow at nearly three times the rate of demand in both 2025 and 2026. Approximately half of the expected supply increase will come from non-OPEC+ producers, fueled by robust offshore projects and ongoing growth in global shale production. The surplus could reach 2.8 million barrels per day in 2026 and 2.7 million bpd in 2027.

"Under these conditions, Brent prices are likely to slip below $60 in 2026, drop into the low $50s by the final quarter," JPMorgan analyst Natasha Kaneva wrote. "The outlook worsens in 2027, as mounting surpluses drive Brent to an average of $42, with prices sliding into the $30s by year-end."

The magnitude suggested by these market imbalances is unlikely to fully materialize in practice, Kaneva noted, because adjustments are expected on both the supply and demand sides. "However, the greatest burden of rebalancing will almost certainly fall on supply."

Translation: someone will have to shut in barrels. And historically, that burden doesn't fall evenly.

The Pipeline Politics

Which brings us to Thursday.

Prime Minister Mark Carney and Alberta Premier Danielle Smith are expected to formally announce a memorandum of understanding in Calgary that would provide "political support" for a new oil pipeline to British Columbia's northwest coast.

The deal, as reported by CBC News and confirmed by multiple sources, would grant Alberta specific exemptions from federal environmental regulations, including Ottawa's net-zero clean electricity rules, in exchange for the province adopting a stricter industrial carbon pricing regime and committing to a multi-billion-dollar investment in carbon capture through the Pathways Alliance.

The MOU is also expected to address exemptions to the Oil Tanker Moratorium Act (C-48), which currently prohibits oil tankers along B.C.'s northern coast. The federal government is contemplating using its authority under the One Canadian Economy Act (C-5) to permit tankers linked to the proposed pipeline to circumvent the existing ban.

B.C. Premier David Eby has been a vocal opponent. He told reporters on Monday that he had a private conversation with Carney where he expressed three specific concerns: First Nations must have a voice regarding a pipeline crossing their traditional lands; the existing tanker ban should remain in place; and any substantial federal funding for an Alberta pipeline should be matched by similar support for a B.C. project.

"There isn't a scenario where, given the current oil prices, a private company would invest in this pipeline across the north," Eby said, noting the estimated cost ranges from $20 billion to $30 billion.

He's not wrong about the price environment. But the politics are moving faster than the economics.

Carney, speaking at the G20 summit in South Africa on Sunday, said the discussions are "constructive" and there is a "prospect of an agreement," though it's "not finalized". He emphasized that any national project must have full support of Indigenous peoples.

Smith, for her part, has softened her tone slightly, agreeing with B.C. that maximizing the existing Trans Mountain pipeline capacity should come first. The federally-owned Trans Mountain expansion, which became operational in 2024 after years of delays and cost overruns, generated approximately $568 million in earnings during the first quarter of 2025 alone.

What This Actually Means

Here's the uncomfortable synthesis:

For oil producers: The global market structure is shifting beneath your feet. Even if a new pipeline to tidewater provides optionality, access to Asian premiums, diversification away from the U.S. Gulf Coast, the economics of that pipeline will be tested in a world where Brent could be trading in the $50s by late 2026 and potentially the $30s by late 2027. No private company has yet indicated willingness to finance a $20-30 billion project in this price environment.

For policymakers: The MOU expected on Thursday is a political achievement, resetting federal-provincial relations, creating a framework for Indigenous consultation, linking carbon pricing to resource development. But political support doesn't change project economics. The regulatory architecture (C-48, C-69, the Impact Assessment Act) can be reformed or exempted, but the capital markets will still demand returns that make sense at $50 oil, not $80 oil.

When supply meets reality, prices adjust. The question for Western Canada is whether we're building infrastructure for the market we want or the market we're likely to get.

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Have a good week all,
-Lee