Low $30 Oil and the effects on the Alberta Oilsands

Why is oil at US $30 and what effects will it have on Alberta Oilsands

It is Feb. 12 and US oil prices have settled at US $33.98 a barrel. What has happened to the price of oil and can Alberta oilsands companies still remain profitable at this level? The price of oil fell 5.5% to settle at its lowest point in recent memory. We seen the US price of oil fall from $140 US a barrel in less than 6 months to $33 US a barrel. Can the Alberta oilsands companies survive this level of low oil prices? It has been the uncertainty of the future price of oil that concerns Alberta oilsands companies and not the current price levels we see in the market. It is in this unstable financial market that we the halt of further development of any new Alberta oil sands companies’ projects and a stand still in development. While many companies including large oilsands companies Syncrude Oil continue to be optimistic of the future, many smaller oilsands companies have had to file bankruptcy. What is a sustainable level of US oil prices a barrel and will there be a mass file for bankruptcy soon for this industry?

Large inventory of Oil means continued low US oil price per barrel

It is a straight supply and demand equation for why oil prices are low right now. The financial crisis can be blamed for this but so can the rapid rise in US Oil prices per barrel and the frenzied speculation we have seen for investing in anything related to the Alberta oil sands. Currently we have a glut in demand leading to a stockpiling and buildup of inventory in the US and the world. We frankly have record levels of inventory of oil meaning that the US oil price per barrel remains low. Until this glut is consumed and demand for oil resumes, we will continue to experience record low levels for US oil prices. It is hard to imagine a situation like this since we have been so accustomed to the opposite. The demand for oil has been so robust leading to the quick and rapid development of the Alberta Oilsands. The Alberta oil sands represents a significant source of Oil and is only second to Saudi Arabia. However, with the current glut and oversupply we are seeing the slowdown of massive proportions. In the US we expect to continue to see a glut in demand as unemployment data continues to be negative and the forecast the same for the next few months. More and more people will choose to conserve and thus the US oil price per barrel will be at $30 or even lower to come.

Can global demand for oil shrink in 2009

Aside from the question of a glut of demand for oil in the US is the bigger question of the world demand. What is going to be the demand for Oil from the world in 2009 and 2010? There are many reports from well known International Agencies reporting that the demand for oil in the world will shrink to levels in the early 80’s. This means that we may see a low US oil price per barrel for some time to come. What will the global demand for oil mean to Alberta oilsands developments? It is a hold and see approach for 2009 and possibly the first quarter of 2010 as major Alberta oilsands players are reacting to the numbers of global demand. If the demand for oil continues to shrink in 2009 then we will see a low level of economic development in Northern Alberta, Athabasca regions where development has been brisk for the last 5 years. While no one can see the future, it is the job of companies such as Shell, Syncrude, and Imperial Oil to forecast the demand and thus the development schedule of oilsands development. It is these large Alberta oilsands companies that can change their production and development schedule to closely match global demand.