International oil markets experienced significant volatility earlier this week, with crude prices falling to their lowest levels in over a year. West Texas Intermediate (WTI), North America’s key crude oil benchmark, saw its price drop from around $75 US a barrel to approximately $66 US, driven by ongoing market uncertainties.
Rory Johnston, a Canadian energy analyst and founder of Commodity Context, described the recent price drop as an “utter bloodbath.” He noted that while there are valid concerns about the market, the speed and severity of the price decline are not fully justified by the current market fundamentals.
In Alberta, some analysts view the volatility as a short-term issue. Johnston expects a price rebound in the coming weeks, with WTI prices climbing back above $67 US a barrel on Wednesday, marking a nearly three percent increase.
Johnston believes that while the market may face longer-term weakening depending on OPEC‘s decisions for the next year, the recent sharp drop is likely to be short-lived. Analysts attribute the price decline to factors such as a slowdown in Chinese oil demand due to rising electric vehicle sales, OPEC’s downward revision of global oil demand growth, and recession concerns. These issues highlight the challenge for OPEC+, which includes OPEC and allies like Russia, in managing the oil market.
OPEC+ recently postponed a plan to increase oil production after prices fell to their lowest levels of 2024. Despite the short-term volatility, Mark Parsons, chief economist at ATB Financial, expects oil prices to rebound slightly and stabilize around the mid-$70 range by next year. Parsons suggests that recent declines may quickly reverse, emphasizing the importance of observing long-term trends.
OPEC+ has implemented several output cuts since late 2022 to support the market, with most cuts extending until the end of 2025. The group had planned to start unwinding recent cuts of 2.2 million barrels per day in October but decided to delay this plan by two months due to the recent price slump.
Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy, anticipates potential softness in oil prices during the fall, especially after the end of North America’s major driving season. He notes that OPEC+ needs to carefully manage the timing of returning additional barrels to the market to avoid further price declines.
Al Salazar, energy columnist for CBC Radio’s Calgary Eyeopener, sees the current price drop as a significant setback but believes it is too early for oil producers to panic. He highlights the importance of monitoring the market in the coming weeks.
For Alberta, the recent price drop underscores the province’s reliance on oil revenues. The Alberta government had forecasted an average WTI price of $76.50 US in its first-quarter fiscal update, an increase of $2.50 US per barrel from earlier projections. Parsons notes that the province will closely monitor the market, as royalties are sensitive to oil price changes.
Justin Brattinga, press secretary for Alberta’s Ministry of Treasury Board and Finance, emphasized that while current oil prices are below projections, they are subject to fluctuations. The government remains optimistic, noting strong oil production and increased drilling activity. To mitigate future revenue volatility, Alberta is working to grow its Heritage Savings Trust Fund to $250 billion by 2050.
Scott Crockatt, vice president at the Business Council of Alberta, remains hopeful about the energy sector but acknowledges the challenges ahead. He cautions that prolonged low prices could limit the provincial government’s spending flexibility, with each dollar decrease in oil prices potentially costing the province $630 million in revenue. Despite this, Crockatt and other analysts agree that there is no need for panic. He stresses the resilience needed to navigate these fluctuations, noting that current mid-$60 prices are manageable.