Oil price nosedive could spark a rebound: Notley
The latest nosedive in world oil prices could actually stimulate a rebound in the longer term, says Alberta Premier Rachel Notley.
Notley said the dramatic drop in prices — oil fell Monday to US$34.53 per barrel for the first time since 2009, before closing the day at $36.31 — could prompt the reduction of supply necessary to boost crude prices back into a higher range in the future.
“Some people argue the drop in the price of oil is actually what’s needed because that will finally slow down supply eventually, and then the price will come back up,” she said in a year-end interview with the Herald.
“The price we had two and a half months ago — when we were hovering in the high $40s — was actually going to continue to stimulate oversupply and that we would see this low price continue for a longer period of time.”
At least, that’s the theory of some economists — and there are a lot of other theories out there, the premier conceded.
Notley said the other silver lining is low prices could also spark more upgrading of petrochemicals in the province.
“The economic case for upgrading in Alberta actually improves with the drop in the price of oil,” the premier said. “I am not suggesting that it makes up for the much hardship that’s created by the drop in price, but it is one small sideeffect.”
She said her government is rolling out plans early in the new year to incent or partner with industry to bolster oil upgrading in Alberta.
Canada West Foundation senior economist Janice Plumstead said the low oil prices could motivate some petroleum producers to slow down supply which would crease inventory, but it won’t happen quickly.
“I think 2016, from everything I have seen, is still not going to be a very robust year,” she said Monday. “I still think we’ll be in this for a little while.”
Plumstead said there won’t likely be a significant improvement in prices until 2017.
But she said low oil prices do make upgrading more economical because the input costs are lower. Whether or not that will result in more upgrading has yet to be determined, she added.
If the price of oil stays below $50 per barrel the rest of the fiscal year, it could increase the forecast $6.1 billion provincial deficit.
The October provincial budget predicted oil prices will average $61 a barrel in 2016-17, before rising to $68 the following year. Every $1 per barrel drop in the price of oil over the course of a year cuts provincial revenues by $170 million.
Notley said her government is watching the numbers closely.
“We’ll consult with officials this week to find out what changes in projections arise from this,” she said.
The premier wouldn’t speculate if the economy has yet hit rock bottom.
“We’ll operate on the most conservative estimates we receive, but it’s very volatile,” she said.
The economic crisis is expected to drain the province’s contingency account by the end of next year, but Notley said the NDP government will not liquidate the Heritage Savings Trust Fund.
“We would probably borrow before we did that,” she added.
To date, past provincial government have restricted borrowing to financing capital projects only, but in the near future the province could start borrowing for operating expenses.
While that’s not ideal, it’s not all gloom and doom, Notley said.
“We have the lowest debt-to-GDP ratio of any province by a long, long way,” she said. “Our overarching three-year plan has been reviewed and most people think it makes sense.”
Not ley said the government plans to stick to its three-year program of promoting economic diversification, building infrastructure, creating jobs and making capital accessible for businesses.
She said her government will also be talking to the royalty review panel it struck to determine if some action can be taken to stimulate the oilpatch.
Opposition critics say Notley must make more of a concerted effort to deliver on new pipelines to get Alberta’s oil to market and to reduce the price differential between bitumen and benchmark West Texas Intermediate (WTI) oil.