Cautious optimism in Alberta’s energy sector as oil prices increase
CALGARY -- The price of oil has been slowing making a rebound in Alberta as the pandemic eases.
For a sector battered by seven years of depressed prices and political defeats, there's an unfamiliar emotion trickling into the offices of the oil patch: hope.
"I would say in the Canadian sector it's cautious optimism”, said Tim McMillan, the president and CEO of the Canadian Association of Petroleum Producers (CAPP).
Tuesday, the price of West Texas Intermediate (WTI) closed just over $73 US a barrel. The last time it was anywhere close was October 2018, when the price hit $75.
“That’s going to mean very good revenues for government, very good royalties higher than were budgeted. But what we are seeing is a lot of money going back into capital investments. In fact, we had one of the lowest years of capital investments in the last decade which is not traditional when we are on the up cycle with price,” said McMillan.
McMillan said there is also caution in Canada to invest, so companies don’t have a demand for jobs right now.
“Anytime that you go from the lows that we were at last year back to something more normal there’s a bit of friction getting people back into the labour force. But we aren’t seeing the big demand for jobs that we traditionally would.”
A RETURN TO $100 A BARREL: B OF A
The Bank of America predicts oil could hit $100 US a barrel next year as the demand for air travel bounces back, though the average will be around $75 per barrel.
Economists say the price has been increasing the last several months and it comes down to supply and demand.
“It’s being driven most recently by the fact that vaccine efforts and re-opening of economies is happening a little faster than maybe was expected so people are anticipating demand for things like jet fuel and gasoline will be up over the summer and voila, that pushes the price of oil up,” said Rob Roach, deputy chief economist, ATB Financial.
Roach said it's difficult to forecast oil prices with so many changing factors, but he expects prices to remain around where they are for the next while until supply catches up.
He said the oil sector is trying to make up for lost revenue during the pandemic while demand has been lower.
“A lot of this extra revenue that’s flowing in is really backfilling holes that were created last year…if the price can stay this high it’ll start to translate into more exploration and drilling, which is where we get more economic activity,” said Roach.
The incoming CEO and president of the Petroleum Services Association of Canada said from the service side, there is optimism.
“The service industry has been running pretty lean for the past number of years, six to seven years now so there is optimism. But we also recognize the industry has faced a lot of complex challenges and the service side has adapted and they’ll continue to adapt,” said Gurpreet Lail.
Lail said drilling activities are comparable to 2019 levels so she is hopeful oil prices continue to trend upward to create more opportunities.
Gurpreet Lail takes over leadership next week. She is currently the CEO and president of Big Brothers Big Sisters of Calgary and Area. She said she hopes her broad and diverse background will bring a new outlook to the organization.
“Whether that’s transforming the conversations and the dialogues that are taking place in public forums with various stakeholders or government and just ensuring we are advocating for the service side to the best of our abilities and ensuring that all the good work the service industry is doing in terms of technology, innovation is actually being seen.”
Lail said the industry is making innovative inroads when it comes to environmental initiatives, saying those topics need to come to the forefront.