Canada's energy sector swings to profit in Q1 on higher oil prices

Canada's energy sector saw a big bump in profitin the first quarter this year asrising 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 monthsafter 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 facingvolatility this weekalong withthe rest of the stock market on concerns over the impact of thetrade war between the United Statesand China, prices have skyrocketed since the start of the year.

Benchmark U.S. oil West Texas Intermediateis 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 centto over$41 a barrel.

Energy led gains among all industries

The gain in operating profitin the energy sector outpacedall 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 declinedfor 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 alsopointed out that inventory levels among oil and gas companies grew in 2018. The Alberta government had introducedmandatoryproduction 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 mixedpicture forCanadian businesses, varying by sector, is not surprisingconsidering 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 scheduledto bereleased May 31.