Plunging oil prices point to ‘deep collapse’ in sector, drilling firm CEO warns

Plunging oil prices point to ‘deep collapse’ in sector, drilling firm CEO warns

CALGARY — The CEO of one of Canada’s largest drilling rig contractors says plunging North American crude prices on Monday and Tuesday are signs that the oil industry is headed for a “deep, deep collapse.”

On Tuesday, U.S. benchmark West Texas Intermediate oil future contracts for June delivery settled at US$11.57 per barrel, down US$8.86. With Monday’s decline, the price is down more than 57 per cent in just two days.

On Monday, the WTI contract for May delivery fell US$55.90 to US-$37.63 per barrel — which means contract holders were paying others to take the oil off their hands. On Tuesday, contract expiration day, the amount returned to positive territory, settling at US$10.01.

Watching WTI fall negative for the first time in history on Monday was “shocking” for a longtime oil industry participant, said Precision Drilling Corp. CEO Kevin Neveu in an interview.

“Our customers are concerned because they’re selling their oil and gas products right now into markets that are volatile and quite low priced,” Neveu said.

“Access to capital is completely turned off. We’re seeing more and more news of companies that are failing and have to restructure their debt.

“I think we’re sliding down into a deep, deep collapse of the industry right now.”

Spending on oil and gas exploration will fall even further from current, already-depressed levels because of the pricing signals, he said, adding his company has already made “significant” workforce reductions.

Analysts say oil prices are down on oversupply concerns because storage tanks are nearly full and refineries are reducing output amid slow economic activity during the COVID-19 pandemic.

Crude oil traders are starting to realize that if storage is full in May, it’s probably going to be just as tight in June, said senior analyst Martin King of RBN Energy, commenting on Tuesday’s oil market activity.

“Essentially, the demand has fallen faster than the supply. It’s piling up either in storage at the refineries or in big tank farms,” he said.

Oil production in Western Canada will likely fall by at least one million barrels per day and possibly as much as two million bpd as producers cut back where they can to avoid low prices, he said.

That stands to damage the Canadian economy, resulting in fewer jobs and lower royalties and taxes for various levels of government, he said.

On Monday, Husky Energy Inc. announced it had cut 80,000 barrels per day from production, mainly from its oilsands and heavy oil operations in Alberta and Saskatchewan, because of low prices and lower demand from its refineries.

Analyst Phil Skolnick of Eight Capital estimated total cuts announced in Canada so far add up to at least 365,000 bpd.

This report by The Canadian Press was first published April 21, 2020.

Companies in this story: (TSX:PD, TSX:HSE)

Dan Healing, The Canadian Press

crude oil

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Alberta discussing early Stage 2 economic relaunch

Nineteen new COVID-19 cases confirmed by government Wednesday

Red Deer city council defeats bylaw that would have expanded cannabis sales locations

Sixty possible locations would be “overkill,” says Coun. Lawrence Lee

COVID-19 crushing longtime family-owned guide outfitter

What was once a thriving business has all but dried up. Steve… Continue reading

Alberta setting up advisory committee to get firearms recommendations

Updated: Province to set up firearm examination to speed up testing of guns used in crimes

Solidarity together: Central Albertans protest in Red Deer against racism

There’s no such thing as a little bit of racism. Even one… Continue reading

Parade marshal named for cancelled Stampede

Parade marshal named for cancelled Stampede

Calgary couple stranded in India by COVID-19 pandemic killed: family

Calgary couple stranded in India by COVID-19 pandemic killed: family

Cannes announces lineup for a festival cancelled by COVID

Cannes announces lineup for a festival cancelled by COVID

Canadian Felicia Spencer ready to face UFC ‘living legend’ in Amanda Nunes

Canadian Felicia Spencer ready to face UFC ‘living legend’ in Amanda Nunes

Two-time Olympic gold medallist Haley Irwin retires from national hockey team

Two-time Olympic gold medallist Haley Irwin retires from national hockey team

Als head coach Jones says he received death threats as CFL player in Winnipeg

Als head coach Jones says he received death threats as CFL player in Winnipeg

MLS, players reach new labour deal, to resume with tournament

MLS, players reach new labour deal, to resume with tournament

Ontario Premier Ford says tests of NHL players would be handled in private labs

Ontario Premier Ford says tests of NHL players would be handled in private labs

Most Read