Economists are predicting layoffs and production clawbacks in Alberta’s oilsands as oil prices plunged further on Monday with U.S. benchmark crude trading below $46 per barrel for the first time in six years.
The price for West Texas Intermediate (WTI) crude oil for February delivery fell 4.7 per cent to $46.07 per barrel on Monday — its lowest price since April 2009 — after Goldman Sachs revised down their three-month WTI forecast to $41 per barrel, predicting prices at $39 per barrel for the first six months of 2015 and $65 per barrel for the year.
“This feels eerily like 2008-2009, at least in terms of the oil price,” said Todd Hirsch, Chief Economist at ATB Financial.
“I wouldn’t say I’m surprised. We’ve spent the last four years being the envy of the industrialized world with growth rates at four per cent so now it’s a smack-down and that’s the way this province operates.”
Calling it a “garden-variety downturn”, Hirsch predicts layoffs will push Alberta’s unemployment rate up from 4.5 per cent to 6 per cent and possibly higher as oil producers and service companies look to cut costs between now and late spring. It isn’t all bad news, he said, as Alberta’s agriculture, forestry and tourism sectors will all benefit from low fuel prices and a low Canadian dollar.
Patricia Mohr, Vice-President of Economics and Commodity Market Specialist for Scotiabank, expects traders will push prices to an “unsustainable low” of $40 per barrel within the next few weeks, coinciding with a sharp drop in drilling activity underway in the U.S. and Western Canada which is expected to pull down the overall growth in oil production in 2015.
Canadian Natural Resources Ltd. recently announced it would slash its 2015 spending by about 28 per cent, deferring roughly $470 million in spending on the first phase its Kirby oilsands project and last week, Shell announced it would be laying off roughly 200 workers at the Albian Sands project, one of five major oil sands mining ventures.
“In my view, it’s a pretty grim situation but I don’t expect it to last. I think by the second quarter, prices are going to start to move up again,” said Mohr, predicting an average annual oil price of $60 per barrel in 2015.
As oilfield workers push through the “hundred days of hell” from January to March when they face long hours and brutal temperatures, Calgary-based Petroleum Services Association of Canada (PSAC) President Mark Salkeld said many oilfield hydrovac, well service, transportation and construction companies are practicing caution.
“Everyone is already looking to make sure they’re tight and lean going into spring break-up,” he said. “It’s obviously a concern and you’re seeing budget cuts such as CNRL but we’re still producing. The wells still need to be worked over, they still need to be maintained to produce to the north.”
The Costco at update 7259 Winterburn Road and Whitemud Drive had the lowest gas price in Edmonton at 65.9, according to edmontongasprices.com.
– With files from Reuters