By Liam Verster

Crude Oil Price

Local oil and gas representative bracing for impact of crude oil price drop

Mar 9, 2020 | 1:47 PM

Alberta’s oil-based economy is expected to take a hit as an already reduced demand for oil caused by the coronavirus is amplified by an oil production war between Saudi Arabia and Russia.

Neither oil-producer is agreeing to a proposed cut in output, which has caused the price for West Texas Intermediate crude to fall to $31 US per barrel (as of 1 p.m. Mountain Time).

Rob Petrone, the past president and current spokesman for the Grande Prairie Petroleum Association, says in his 42 years in the industry, this is the biggest impact on oil prices he’s ever seen.

“The Gulf War had a big impact, but I think this is even worse. The fear is, and we’re seeing this already, is it’s going to have a direct impact on the communities across Alberta, and North America really.”

He says on top of this drop, the industry is nearing it’s break-up period, and expects there to be some serious impacts to the local workforce.

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“We’re about three weeks to a month away, which is typically a slow time in the [Grande Prairie] area anyway for work to be done because of break-up, and this is just going to compound that. Some of the work I’m seeing, some companies already announcing this morning, like the company I work for, that any work we had scheduled to do working over oil wells and stuff like that, we’ve [been] asked to shut all that down and wait until things improve.”

Petrone adds it’s going to take a little bit of time for companies to adjust to the drop in price, but has no doubts that there will be cut backs in short term capital investments until the commodity prices turn around. He expects there to be layoffs and less opportunities for not only those working directly in the oil and gas industry, but for service providers as well.

“As soon as you see a reduction in capital like that, that has a direct impact on the service companies and stuff that are providing these services. So I have no doubt at all that it’s going to have an effect on not only oil and gas producers, but also the service companies. And any company that’s planning to do any amount of capital work on the oil side of things is probably going to come to a grinding halt here for the time being, until things turn around again.”

Petrone adds the provincial government will also feel the impacts of reduced revenues, and expects this to result in less funding for services such as education, health care, and infrastructure.

The price per barrel is $27 lower than the price forecasted in Alberta’s budget, and each $1 drop in price represents about a $200-million cut from Alberta’s bottom line.

On top of that, Petrone says the drop in price, the potential layoffs, and lack of work will have an impact on local economies.

“People aren’t going to be spending the money, so it’s going to have an impact on everybody, small business as well. People are fearful of being laid off, or whatever the case may be. Not working, or reducing their revenues and stuff, has a trickle effect through the whole community.”

Meanwhile, Petrone says the natural gas sector hasn’t felt an impact of the oil-price plummeting, and expects it to stay pretty much level in the near future.

“In fact we’re not too far from the heating season coming up, and typically we see an increase in the summer months for air conditioners, stuff like that. So, I think natural gas is going to stay fairly stable. It’s not a great price, but it’s definitely not being impacted as oil is, so that’s a good thing, at least one of the commodities is where it is.”

Petrone says there’s nothing an outside source can do to bring the price for crude oil back up, and that it will have to come down to Russia and Saudi Arabia agreeing to cut production and offset the oversupply. He says until they get back to the bargaining table and agree to curtail production, there won’t be any positive changes in the market.