The oil price rout extended from corporate spending cuts to layoff notices this week as fears of recession emerged for Alberta’s recently booming economy.
A week of bruising financial news in Canada was centred largely in Alberta as Suncor Energy revealed it will cut 1,000 jobs and Finance Minister Joe Oliver told the Calgary Chamber of Commerce the federal budget would be delayed until at least April due to the unsettled oil markets.
Oilfield services giant Schlumberger, which has extensive operations in Western Canada, contributed to a spate of recent news of spending cuts and project delays in the oilpatch, announcing Friday it was cutting 9,000 jobs worldwide.
The sharp decline in the price of oil has also undermined the performance of the Toronto Stock Exchange and pushed the loonie to a six-year low versus the U.S. dollar.
Announcements that retailers Target and Sony were closing their stores in Canada added to the gloom.
“This week brought a wave of bad news that was enough to shake the faith of even the most ardent optimist, especially so in Canada,” Doug Porter, the chief economist at BMO Capital Markets, said in a research note Friday.
The Conference Board of Canada’s chief economist also warned this week that recession looms in oil-rich Alberta this year and — after initially dismissing the negative economic forecast — Premier Jim Prentice acknowledged Friday that his government would run a budget deficit this year to help avoid a severe economic downturn.
Prentice has warned the oil price collapse will cost the province $7 billion in revenue this year.
“I don’t think our circumstance is dire, it’s very serious and it needs to be addressed,” he said Friday in Houston, where he participated in the opening of a pipeline to move Alberta oil to refineries in Texas. “Part of the solution also needs to involve deficits because we are actually warned by economists that to try to deal with this too quickly could actually trip the province into a recession and make matters worse.”
Matters have been getting steadily worse in Alberta since June when the price of oil started a free fall that would see benchmark crudes lose more than half their value — West Texas Intermediate gained five per cent to $48.69 US a barrel Friday — in a world oversupplied with oil.
Canadian Natural Resources kicked off the week announcing it would cut $2.4 billion from planned spending in 2015 as it followed the lead of several energy companies. On Friday, Calgary-based intermediate Trilogy Energy became the latest producer to confirm it would shut in production in response to low prices.
The jobs announcement from Suncor sent shock waves through the industry.
“We were used to announcements of massive cuts in energy company capex budgets,” Porter wrote. “But, when Canada’s largest oil company took the further step of cutting 1,000 jobs, the discussion moved to a whole new level.”
And the cuts might not be over yet.
After Suncor’s chief financial officer, Alister Cowan, introduced Oliver at his speech to the Chamber of Commerce audience in Calgary Thursday he acknowledged that “we want to live within our means and, if prices remain low, we’ll take further action.”
Shell Canada cut 300 jobs earlier this month and media reports suggest several oil and gas companies will hold “town hall meetings” with employees in the coming weeks to discuss how they will adapt to the low commodity-price environment.
“It’s a difficult time for everybody in the energy business” Prentice said.
Even the unseasonably warm temperatures in Calgary this week came at a price.
Investment firm FirstEnergy Capital noted “the current heating season is effectively over from the standpoint of market pricing” and with a “tame” winter in North America it cut its price forecast for Alberta gas price almost in half to $2.30 per thousand cubic feet for this year and next.
It’s worth noting that despite the remarkable decline in oil prices — and Bank of America Merrill Lunch forecast crude will sink to $31 US this year — to the lowest levels since 2008 investment firm Peters’ Co. issued a report this week which noted oilsands production will still increase by 300,000 barrels a day for the next two years as projects come on stream regardless of the oil price.
Most of the major spending cuts announced are on longer term projects.
Nonetheless, the vibrant economic situation in Alberta has deteriorated so quickly, Prentice confirmed this week he will consider a provincial sales tax for the first time in Alberta since the 1930s in an effort to reduce the overwhelming impact of volatile oil and gas royalties on government revenues.
The most promising news of the week emerged Friday when the International Energy Agency said that tentative signs are stating to emerge to suggest the oil price tide is starting to turn.
“How low the market’s floor will be is anybody’s guess. But the selloff is having an impact,” the Paris-based IEA said in its monthly report on global oil markets. “A price recovery – barring any major disruption – may not be imminent, but signs are mounting that the tide will turn.”
Stephen Ewart is a Calgary Herald columnist