Oil prices off to a decent start in 2021
The recent oil price rally is good news for the Alberta economy
By ATB Economics 4 February 2021 2 min read
You just never know what is going to happen when it comes to oil prices. Still, it’s good news for the Alberta economy that a price rally has taken the West Texas Intermediate (WTI) benchmark into the mid-$50 range.
WTI closed on February 2, 2021 at $US 54.76. Meanwhile, the Western Canadian Select heavy oil benchmark closed at $US 43.50—the highest close since September 2019.
There are always lots of moving parts working behind the scenes, but the rally has been driven by the expectation that coronavirus vaccines will lead to increased global oil demand and that supply limits set by the OPEC+ cartel will be maintained. Falling global storage levels are also helping to shore up prices.
The news Alberta’s oil patch has been getting this year has been, however, decidedly mixed.
On the bright side, capital investment and drilling activity are expected to be higher this year. With that said, the increases are relative to one of the worst years on record.
Work has been continuing on the Trans Mountain pipeline expansion project, but its completion is still not a slam dunk. The same is true for the Line 3 replacement project. Construction on the Minnesota segment began in December but faces opposition. Without these pipelines, Alberta’s oil production will be constrained along with the investment, jobs and government revenue it creates.
Then, of course, there was the cancellation of the Keystone XL pipeline project by President Biden on his first day in office. The new president’s efforts to curb oil drilling in the U.S. may have some positive benefits for Alberta producers, but the impact is uncertain and not a tonne of help in the short-term.
The mixed bag of forces facing the oil patch also includes a potential rise in demand and prices as those with the wherewithal to do so increase their spending as the pandemic recedes. But the pandemic is still in play, international travel and the demand for the jet fuel associated with it will remain muted for an extended period and those without the wherewithal will struggle as emergency government support winds down.
Finally, between efficiency improvements, new technology and consolidation, our oil patch is well-positioned to be more competitive than it was five years ago. But, this also means that it needs relatively fewer workers to get the job done.
As always, it is going to be an interesting year ahead for both our economy and oil patch.
Answer to the previous trivia question: The Hudson’s Bay Company was chartered on May 2, 1670, making it the oldest incorporated joint-stock merchandising company in the English-speaking world.
Today’s trivia question: Although harvested by Indigenous peoples and early European settlers for many years, the first true oil well in Alberta capable of producing hundreds of barrels a day struck oil at 312 metres in 1902. Lineham Discovery Well No. 1 is now a National Historic Site. Where is the site found?