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U.S. crude oil prices declined just under 1 per cent to US$48.40 per barrel on Tuesday on higher output in the United States, Canada and Libya.

U.S. production has surged on the back of liquids-rich basins such as the Permian light oil play in Texas, where production has grown significantly in recent months as oil prices improved.

“We think the data in the coming weeks and months should begin to

put more of a positive spin on the resetting of the global oil market to more reasonable levels, but it will still take time,” King said.

Rival producers in Canada and other countries are concerned about the competitiveness of U.S. shale plays relative to their own assets and have been becnhmarking their cost curves against those in the Permian.

“It’s been a tremendous turnaround,” King said, adding the massive volumes produced in the U.S. are the result of productivity gains and low costs.

However, the “law of diminishing returns” is taking hold and productivity gains are slowing in American shale plays, which will result in higher breakeven costs.

“The productivities are starting to flatten out and that means higher costs at some point, which generally means higher break evens,” King said.

Another issue weighing on Canadian equity valuations is U.S. President Donald Trump’s musings about a border adjustment tax and his growing list of North American Free Trade Agreement grievances with Canada.

King said Canada and the U.S. have the most productive energy trading relationship in the world and Trump “cannot, by himself, kill NAFTA by executive order.”