Today I am beginning a new series of blogs called “Why is there less work in the oil sands now compared to 7-8 years ago?” The blogs focus on the Alberta economy and job opportunities for BTA members. I start by looking back at the global collapse of oil prices in 2014. Later this week, I will look at how the oil price collapse has impacted Alberta.
Why did oil prices collapse?
As you know, oil prices dropped 70% between mid-2014 and early 2016. The collapse of oil prices was particularly hard on jurisdictions that do not have diversified exports, i.e. Alberta. Recalling the reasons for the collapse can help us understand our current situation.
First, increased US shale production reduced the need for imports. Then most members of the Organization of Petroleum Exporting Countries (OPEC) refused to cut back production. So together, US shale and OPEC production flooded the global oil market.
Second, oversupply coincided with less than expected worldwide demand for oil due to
- a slowdown in economic growth in countries that import oil
- fuel efficiencies that reduced oil consumption
- concerns about climate change, which led to an emphasis on alternative energy technologies.
Global oil prices plummeted from $110US per barrel in June 2014 to $29US per barrel. The following graphs show West Texas Intermediate prices and Western Canada Select (WCS), the price that applies in Alberta. WCS hit a low point of $5.97US per barrel in December 2018.
The global collapse of oil prices set the stage for much of what has happened in Alberta’s economy since 2014. My next blog will look at how the oil industry responded to the collapse of oil prices. As we know all too well, the collapse would take a heavy toll on Alberta’s economy and building trades members.