The situation is dire for Western Canadian oil amid the current oil price war between Russia and Saudi Arabia, says the latest Scotiabank Commodity Price Index report.
The report said the Western Canada Select benchmark price recently fell below $4 USD/bbl—an all-time low.
“Thus far, US Gulf Coast refiners have been able to maintain decent margins, contributing to demand for heavy oils and some narrowing of the WTI-WCS discount. However, margins will be increasingly difficult to preserve as COVID-19 lockdowns reduce demand in Mexico and South America. Inventories are already elevated in the Western Canadian oil patch; that may bring more downward pressure on WCS in the coming months,” said the report.
“For Canada’s net oil-producing provinces, the plunge in crude values is set to extend an already lengthy period of economic difficulty . . . We previously forecast that Alberta would finally recoup its 7.7 per cent 2015–16 real GDP contraction by mid-2020; that is now highly unlikely. Weak crude values and depressed economic activity will also add to the CAD $7.5 billion (one per cent of GDP) shortfall projected for fiscal year 2020–21, and recently prompted a credit rating downgrade from one agency.
“Alberta’s February 28 budget associated a drop in WTI prices of $1 USD with CAD $355 million in lost revenue. Our most recent forecast expected WTI to average $31 USD/bbl in calendar year 2020 versus the budget’s $58 USD; sensitivities can vary significantly at different price levels, but this estimate gives a sense of how serious the fiscal hit could be. Acknowledging these challenges, the Province formed an Economic Recovery Council to advise how to protect jobs during and after the current downturn.”
