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Fort McMurray Fire Impact on Oil


Fort McMurray Fire Impact on Oil


The major plunge in global oil prices that went from a high of U.S.$100 per barrel to an extreme low of U.S.$30 in just one year and a half has not only wiped out thousands of industry jobs but also led to a major decline in Canada’s national income by $50 billion, according to the Bank of Canada. With the world’s third-largest oil reserves being located in Canada and Fort McMurray being home to the nation’s oil and gas industry, the recent wildfire disaster may negatively contribute to the global oil supply cliffhanger and potentially influence a minor rise in oil prices. Pushing lost global supply of oil up to approximately 3.5 million barrels per day, oil companies around Fort McMurray have been cutting back on production by over one million barrels of oil per day since the wildfire started. Oil prices are undoubtedly surging as producers take a big hit with heavy supply declines. However, what’s keeping oil prices at bay is the rising Iranian oil production which balances out with the Alberta oil outage. Nonetheless, majority of Bay Street banks are feeling bullish on oil prices, with CIBC expecting crude to reach US$65 by the end of 2016 and RBC Capital Markets predicting a forecast of US$50.

After gathering with oil production company executives on Tuesday, May 10th, Alberta Premier Rachel Notley claims that if output continues to decline at the same rate for another one or two months, “it would have measurable outcomes to our GDP”. According to Steve Williams, CEO of Suncor, and other oil industry executives, this tragedy will not have too much of a negative impact on employees and their jobs, as they are ready to take certain measures to ensure the companies remain stable for the most part. If there were to be a decline in employment rates in Alberta, it would be a short-term decline that will eventually recover. As mentioned in the article Why Supply and Demand Doesn’t Work for Oil, oil companies put their best effort to extract as much oil as possible in order to keep their revenues running high in order to pay back their debts and pay their trained workers. One way in which they ensure that their production keeps running is by having derivative contracts that maintain high oil prices for a decent amount of time even after the price drops.

Economic Development Minister Deron Bilous says:

“Where we’re at today is a fragile situation and the fact (is) we’re focusing all of our efforts on getting through this natural disaster. The international price of oil is something that we can’t control. These are the cards we’ve been dealt.”

As of today, oil sands companies are beginning to inspect their factories in order to resume their operations after meeting with province leaders who claimed that the wildfire is beginning to calm down and moving far enough away from the companies’ locations. With this said, Canadian crude prices are likely to slip again as hopes of oil supply recovery begin to rise.

Writer: Mariam Walaa

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.


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