The oil price rollercoaster
Although $30 is clearly better than the $16.70 that was the average in April, it’s still well below where it needs to be to keep Alberta’s oil patch from struggling.
By ATB Economics 25 May 2020 2 min read
With amusement parks closed and summer fairs cancelled to help prevent the spread of COVID-19, there is at least one rollercoaster ride still open. Unfortunately, it’s the price of oil.
At the start of the year, a barrel of West Texas Intermediate crude was fetching over 60 U.S. dollars. The average for 2019 was $57.
Reduced demand due to the pandemic and a price war between Russia and Saudi Arabia helped drive the price down into negative territory at one point in April.
The good news is that, as of May 22, the price was back up over $30 a barrel. Although $30 is clearly better than the $16.70 that was the average in April, it’s still well below where it needs to be to keep Alberta’s oil patch from struggling.
Another piece of good news is that it looks like the world won’t run out of oil storage capacity in June. The problem is that the storage crisis has been averted (at least for now) because of oil production cuts rather than a return to more normal conditions.
Oil demand has started to come back as economies around the world have been reopening, but it has been the millions of barrels per day of reduced production—including here in Alberta—that has kept the storage tanks from overflowing and prices plummeting back into negative territory.
Oil prices will continue to fluctuate for all sorts of reasons, including the daily news about the pandemic, oil industry, geopolitics and the economy. The state of relations between the U.S. and China, the possibility of a second wave of the virus and the pace of the global economic recovery are just some of the factors that will affect oil prices in the near term.
Although it’s notoriously difficult to predict the path of the rollercoaster, it seems likely that soft prices well below $50 per barrel will be the norm for at least the rest of the year as it will take time for demand to come back and storage levels to come down.
So while there has been some good news on the oil front, it hasn’t been good enough. Revenue, spending and jobs in Alberta’s oil patch will continue to suffer until prices get back over $50 a barrel, production rises and the damage to balance sheets can start to be repaired.