Worries about a US recession and falling oil demand precipitated a sharp fall in oil prices during December. However, cold weather and OPEC's announcement to cut production pushed prices up in January. With world oil demand growing and production from major fields declining, the long-term trend for oil prices is upward with dependence on OPEC increasing. Approximately two-thirds of this incremental supply has come from Western Canada, in what is now an integrated North American gas market. Although prices are difficult to forecast, the underlying fundamentals suggest they will be significantly higher than the historical average.
Higher costs appear to have had a negative impact on gas demand.
On the supply side, despite resurgence in North American drilling, there has been limited success at adding significant new production. Talisman uses both physical contracts and financial instruments to mitigate commodity price risk. Talisman has a large and varied portfolio of gas sales contracts, reflecting the corporate acquisitions made over the past five years and the fixed market commitments of each company. Within this portfolio, Talisman directs an ever increasing component of its sales to short term markets in Alberta and British Columbia. Over time however, Talisman has committed volumes to the market on a fixed price basis using a combination of physical and financial instruments.