Troubles mounting for the oil sector
Jurisdictions like Alberta that are heavily dependent on oil production are facing additional economic stress.
By ATB Economics 19 March 2020 2 min read
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There is a lot going on when it comes to the economic ramifications of the COVID-19 pandemic and the efforts to ease the economic pain. Economists often talk about how the economy is a moving target. At the moment, the target is moving extremely fast and this will be the case until we have a better sense of how the pandemic will play out.
At the same time, jurisdictions like Alberta that are heavily dependent on oil production are facing additional economic stress as low prices cut into drilling activity, the ability of some companies to keep operating and, inevitably, jobs.
Some of the troubles on the oil and gas front at the moment include:
- The price of a barrel of West Texas Intermediate crude on the New York Mercantile Exchange dropped to $US 20.37 a barrel yesterday—the lowest level in 18 years.
- The Western Canadian Select heavy crude benchmark was trading under $US 10 per barrel.
- These prices are below the break-even point for many Alberta producers.
- Saudi Arabia has indicated that it plans to pump even more oil into the global market in the coming months as part of its price war with Russia.
- According to the Daily Oil Bulletin, the number of wells licensed in Alberta in January and February was down 31 per cent compared to the previous year and will likely fall further in March.
- It will be some time before we know the full extent of the damage, but oil sector capital spending plans for this year have already been cut by several billion dollars.
Alberta’s oil sector is, as Peter Tertzakian puts it, “battle-hardened” as a result of the price collapse that brought on a provincial recession in 2015 and 2016. Even so, all signs are pointing to a very difficult road ahead as COVID-19 erodes demand and the price war between Saudia Arabia and Russia increases supply. Hopefully, the target will move in a way that ends the price war earlier than later and keeps the pandemic in check.