Alberta's oil economy forced to 'recalibrate': economist
Published Monday, January 4, 2016 8:14AM EST
Low oil prices took a toll on the Alberta economy in the latter half of 2015. But the price of crude is forcing a "recalibration" which will better prepare the province's petroleum sector for when oil prices eventually rebound, says one economist.
Low oil prices have resulted in mass layoffs in the oilpatch.
In July, 2014, a barrel of crude was priced at just over US$100 a barrel. It now sits below US$40.
The latest data shows that the province's unemployment rate in November, 2015, was 7.0 per cent, an increase of 2.6 per cent from November, 2014.
Todd Hirsch, chief economist at ATB Financial, said that, while the province's policy makers have had some success in diversifying Alberta's economy in the last 30 to 40 years, it is still primarily driven by the oil industry.
"We're reminded one more time that we are still very much a boom-and-bust economy, and very much beholden to where these energy prices go," he told CTV's Canada AM from Calgary. "That petroleum sector is the dog that wags an awful lot of tails."
And when the petroleum industry takes a hit, it has an inevitable ripple effect in other industries, including retail, housing and financial services, he added.
But Hirsch said there could be a potential silver lining that comes amid the economic uncertainty of low oil prices.
Once the price of oil rebounds to between US$55 and US$60 a barrel, the industry will be "healthier," he said, noting that, over the last 10 years, the price of oil rose from about US$42 a barrel to more than US$100 a barrel.
In the meantime, Hirsch said the province's economy will continue to "recalibrate itself," resulting in layoffs and decreased spending.
"All of that is recalibrating downwards, and that is painful to see," he said. "But that will actually help position the petroleum sector to something healthier, so that when oil prices rebound, to perhaps $55 or $60 a barrel, perhaps by the end of 2016, the industry will once again be profitable and stabilize."
Last month, OPEC released its annual World Oil Outlook, forecasting a slow rebound for oil prices.