CALGARY — Oilpatch types may have been having some unpleasant flashbacks in recent days to the fall of 2008, when a steep nose-dive in oil prices caused construction of new projects to grind virtually to a halt.
But experts aren’t expecting the latest crude drop to spark a slowdown of anywhere near that magnitude. During the summer of 2008, crude hit a record near US$150 per barrel. By year-end it was in the $30-per-barrel range.
“I think that was an end-of-the-world scenario,” said John Stephenson, portfolio manager at First Asset Investment Management.
The overnight implosion of investment house Lehman Brothers three years ago was a “cataclysmic event” that shocked markets, but this time the debt debacles in the United States and Europe have been known to the market for some time.
“It’s a chronic, systemic issue that’s going to slowly bleed us down lower. But do I see (crude oil) going down to $30? No. Could I see $70? Sure.”
On Tuesday, crude sank to its lowest level in about a year, but later clawed back most of its losses to just more than $82 per barrel. The turnaround came after the Organization of Petroleum Exporting Countries said it expected global crude demand to keep growing this year, albeit at a slower pace than previously thought.
Crude oil is used to make fuels like gasoline and diesel. Consumers are likely perplexed as to why the drop in crude hasn’t led to meaningful breaks at the pump, said Roger McKnight, a senior petroleum adviser at En-Pro International.
In fact, price-tracking website Gasbuddy.com said the average price in Canada Tuesday was C$1.25, a gain of a penny from Monday.
McKnight said the culprit is the lower Canadian dollar.
“With crude being paid for in U.S. dollars, the Canadian public isn’t seeing that drop as dramatically because they’re using a weaker dollar to pay for it,” he said.
The economic turmoil has consumers worried about their jobs and their retirement savings, and that could cause them to scrip on their fuel use.
“There’s a fear factor here that’s just running rampant right now, not only in the stock market, but with the consumer in general,” said McKnight.
“I would say that demand has been anemic all year, and I can’t see it picking up until such time as there’s some positive news from the United States of America.”
Oilsands operations, which require enormous amounts capital, are still profitable where crude is at now.
“But as you get down to $70 and stuff, it gets a little dicier for many of these projects,” said Stephenson.
On Monday, crude spiralled down 6.4 per cent. It was the first trading day since Standard & Poor’s downgraded U.S. long-term debt late Friday for the first time in history.
“It’s not a reaction, as far as I know, to any real change in the fundamentals,” said Scotiabank commodities specialist Patricia Mohr.
Investors were betting debt worries in the United States and Europe will slow growth in those economies, thereby reducing global demand for energy.
“I’m not readily convinced of that,” said Ralph Glass, with consulting firm AJM Deloitte.
AJM has been expecting crude to average $100 per barrel in 2011, and Glass said he’s not prepared to lower his forecasts just yet.
“We’re still seeing growth in other countries, like China, like India, and we’ve already seen flat or no growth in the U.S. and Europe anyway,” he said.
“So I really think it is just a short-term reaction to what’s happening in the U.S. and Europe as far as the economic growth potential.”