The top ten economic stories of 2020 part 2 of 5
Second only to the pandemic in terms of its negative impact on the Alberta economy in 2020 is the oil price war between Saudi Arabia and Russia
By ATB Economics 14 December 2020 2 min read
It’s that time of the year when we take a look back—from an Alberta perspective—at the top economic stories that took place over the previous 12 months. Each Owl this week will examine one story.
The full list, along with other observations about the year that was, are discussed in the latest edition of ATB’s The Future Of podcast hosted by our Chief Economist Todd Hirsch. The year-end edition can be found here and features commentary from energy guru Jackie Forrest.
Second only to the pandemic in terms of its negative impact on the Alberta economy in 2020 is the oil price war between Saudi Arabia and Russia.
Back in January 2020 before COVID was a household word, the U.S. Energy Information Administration’s (EIA) forecast for the average price of a barrel of West Texas Intermediate (WTI) crude in 2020 was $US59. As of December 8, the EIA expects the 2020 average to come in just under $39. The price averaged $57 in 2019.
The demand destruction brought on by the pandemic is the main reason for the difference, but bad blood between Saudi Arabia and Russia sent painful shockwaves through oil patches around the world, including here in Alberta.
The trouble began in early March. Most observers assumed OPEC and Russia would leave meetings in Vienna with a deal that would shore up oil prices in the face of COVID-19. Not only was no agreement reached on a supply cut, Saudi Arabia and Russia both announced they would be increasing production and the price war was underway.
The war officially ended on Easter Sunday (April 12) when OPEC and Russia agreed to the largest coordinated oil production cut in history. But the damage was done.
The pandemic, the extra supply pumped into the market during the price war, limited global storage, and bad timing saw WTI close at negative $37.63 per barrel on April 20.
Prices rebounded on the back of voluntary supply cuts and market-driven production shut-ins.
As a result, things are much better than they were in the spring, but the damage inflicted by the pandemic and the price war combined with prices that are still languishing below $50 a barrel, means that the Alberta’s oil patch still has a lot of healing to do.
ANSWER to Friday’s trivia question: In what year did the United Kingdom join the European Communities (which later became the European Union)? 1973
Today’s question: When was The Organization of the Petroleum Exporting Countries (OPEC) founded?