In the oil price war between Saudi Arabia and Russia, the first big victim is likely to be Canada. Hit by unfettered supply from the world’s top two crude exporters and reduced demand from the coronavirus, the benchmark blend of crude produced from Canada’s oil sands plunged to a record low of $7.47 a barrel on Wednesday. The fallout: Virtually every barrel of oil produced there will come at a loss at a time when the energy industry generates 10% of Canada’s gross domestic product and a fifth of its exports.
The losses could spur a stark turnaround for a country that boasted one of the strongest economies in the Group of Seven heading into the crisis, and for Alberta, a province that’s long balanced its budget on its oil royalties. The region was already struggling with a pipeline shortage that curbed growth. The latest blow could spark a “domino effect” across governments, said Dinara Millington, vice president of research at the Canadian Energy Research Institute.
“We are probably going to see another wave of layoffs,” Millington said by telephone. “We will see a reduction in terms of how much the producers are paying the government in terms of tax revenue and royalties.” At the same time, she said, the crisis could have ramifications beyond the purely economic, including “social unrest.”
The distance from Alberta’s oil sands to refineries on the U.S. Gulf Coast, with insufficient pipeline infrastructure along the way, forces Canadian producers to sell their crude at a discount to compete with an abundance of shale supplies.