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Anadarko Petroleum Corp. won applause for capitulating to a crude market that never gives off optimistic signals for long.

The Houston-based shale oil producer lopped $300-million (U.S.) from its 2017 capital-spending plan, which puts the budget at $4.2-billion to $4.4-billion. Its chief executive officer said the company won't sacrifice a decent return for growth in production. Anadarko shares rose 3.6 per cent in New York.

The problem, of course, is that oil prices have lagged most expectations from the start of the year, and forecasters have been clawing back their projections for 2017 and 2018, with a growing number calling for sub-$50-a-barrel crude through the period.

Crude strengthened on Tuesday, rising more than 3 per cent to $47.89 a barrel after Saudi Arabia said it would be more disciplined in its pledge to adhere to export limits, and called on its OPEC brethren to do the same.

The oil patch is in a perpetual tape loop on the commodity-price front. It was a similar situation a year ago. And two years ago.

Anadarko's move prompted investors to start laying bets on whether this renewed austerity could be the start of a fresh industry run of budget cuts as the second-quarter reporting season progresses with worries about the possibility of another retreat in oil prices.

Encana Corp. said last week it will hold the line on spending while still increasing output by 2 per cent, reflecting gains in productivity per well. That's an often-missed factor when discussing the rebound in U.S. shale-oil output following the initial price collapse in late 2014 and early 2015.

And production in the United States looks unstoppable. The U.S. Energy Information Administration expects it to climb to 9.9 million barrels a day in 2018, eclipsing the previous record of 9.6-million set in 1970. Much of the gain is expected from the Permian shale formation in Texas as companies squeeze out more oil from each well faster than ever.

Canadian output is also on track to increase sharply with the startup of oil sands projects that have been under construction, such as the Suncor Energy Inc.-led Fort Hills development.

It all serves to keep working against OPEC's efforts to put a floor under the market with the cartel's own export limits.

In the coming weeks, as more companies issue mid-year reports and provide a window into the rest of the year, it's increasingly likely several will temper their plans to preserve capital in the face of cash flow coming in below expectations.

A very Canadian problem adds to all the uncertainty: the increasing mightiness of the loonie.

Since early May, the Canadian dollar has gained 10 per cent against the greenback, and is now worth around 80 cents. For Canadian oil producers, that's largely a negative, as their inputs are generally paid for in Canadian currency and sales are priced in U.S. dollars.

The discount on Canadian heavy oil has narrowed considerably, and that's a welcome development for those that produce the gooey crude. But the weak overall West Texas intermediate prices and stronger Canadian dollar work against that in the financial results.

Jeremy McCrea, analyst at Raymond James, says energy companies that have pledged to spend only as much as the cash they generate, and have sizable debt, are the top candidates for budget cuts.

"Given where share prices are, there will be a lot of management teams forced to say, 'We need to revise this budget. We're not going to put our balance sheet at risk,'" Mr. McCrea said. "It's just a question of the size of the cuts."

Canadian energy shares had a healthy gain on Tuesday thanks to the jump in crude prices, but are still down 20 per cent from the start of the year, when the clouds looked to be parting over the oil patch.

The depths to which producers cut into their rest-of-year budgets will show the ones that have abandoned short-term optimism as the fourth year of the downturn begins. Those may be rewarded.

The technology at an Alberta oil sands mine near Fort McMurray has evolved since it opened almost 50 years ago. Gary Bunio of Suncor Energy explains how 850-tonne bucketwheel trucks were once used to extract crude oil.

The Canadian Press

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