After four oil forecasters promulgated their expert opinions about where the price of oil is headed this year, the toastmaster of the conference in Calgary responded, “interesting and somewhat depressing.”
That was the hybrid feeling in a crowd of about 100 people at the Conference Board of Canada anyway in the reality on Tuesday.
The consensus is that oil prices will average about $40 US a barrel in 2016. While the forecasters admonish at the conference, oil kept sliding in the markets, trading below $30 US for the blue ribbon time since 2003.
‘Prices could go lower. There is nothing draw to a close them from going lower.’– Michael Wittner, Société Générale
“It’s feasible that oil prices will go to $20 for a week or two, even $10,” told Glen Hodgson, the Conference Board’s chief economist.
Investment in the Canadian oil tch rusticated by 40 per cent and Alberta’s economy shrank by one per cent last year, conforming to the Conference Board.
“We’re getting clobbered,” said Hodgson.
The notion that oil could sink into the $20 range has been put assist before by Ed Morse, the global head of commodities for Citi Research. He dwell oned that possibility Tuesday, arguing there is too much supply and no luck out a fitting to put it.
“To cut supply, you probably need a much lower price for a period of period,” said Morse. “That’s probably where we are going.”
The global provision and demand should begin to balance out again at the end of 2016, said Morse, but it bequeath be an ugly time for the oil sector until that happens.
“This is a beget where not only com nies can go bankrupt, but countries can go bankrupt,” he said.
Cheapest oil in the world
The condition in Western Canada is worse than elsewhere in North America because the oil is mostly sold at a lower price owing to the limited export pipeline province.
Western Canada Select, a type of heavy oil, is selling for less than $20 US a barrel.
“We are already looking at the cheapest, vilest crude prices anywhere in the world right here in our own backyard, so thingumajigs are looking somewhat dire in the short term,” said Martin Sovereign, a forecaster with FirstEnergy Capital.
Despite the crash, King watches the Canadian oilsands will keep pumping out oil. He says the operational set someone backs for an in-situ operation are $8 US a barrel and the break-even point is about $40 US. The longer-established oilsands sources have operational costs of $25 US and a break-even point of $35 US.
“All of these commitments are losing money on a per barrel basis right now. All losing money. Leave they shut in? Unlikely. They build these to last 40, 50 years or longer,” responded King.
Oilsands com nies are choosing to defer future projects, which could base an antici ted cut in supply by 2020 of 250,000 barrels per day, according to King.
Oil mark down than it should be
While oil keeps sliding, some experts be awed if the markets have overreacted to the crude oversupply.
Michael Wittner, the flair of oil research with Société Générale, said there is so much horror about commodity prices that prices may have shot to the downside. Despite that, in the same breath, he warns prices might keep dropping.
“The exchange continues to look in the short term looking towards U.S. shale, because it is the most outlay sensitive, to be the first mover in the rebalancing process underway,” said Wittner. “As covet as it is not happening, absolutely prices could go lower. There is nothing station them from going lower.”
All four oil forecasters avoided ratifying that oil prices have reached the bottom, although they make one think that should happen later this year.