The oil price crash is over — let the recovery of Alberta’s hard-hit economy begin

The crash is over. The rebuilding of Alberta’s energy-fired economy begins.

U.S. crude breaks through US$40 as oil rallies for second day on optimism for producer meeting

Oil surged above US$40 a barrel in Ny for the first time since December as central banks in the U.S. to Norway signaled they will continue to provide economic stimulus to support demand

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After a brutal 75-per-cent plunge between June 2014 and early February of the year, crude oil prices have the symptoms of begun the long or painful march toward recovery.

The April futures agreement for West Texas Intermediate (WTI), the benchmark grade of U.S. light crude, jumped nearly six per cent Wednesday to shut at $38.46 US a barrel around the New York Mercantile Exchange.

Good news? Sure. But few producers are generating a profit at these levels. Moreover, a parade of bankruptcies and defaults among debt-saddled producers, especially in the U.S., still is coming up next. Cue the gloomy headlines.

Nonetheless, there is finally a flicker of expect this province’s hard-hit energy industry.

Since the near-month WTI futures contract bottomed out Feb. 10, it’s jumped a remarkable $12.25 a barrel, or almost 47 percent, propelling the Toronto Stock Exchange’s key energy subindex to a gain in excess of 30 per cent.

That in turn has injected new life into this aging, seven-year-old bull market, pushing the main U.S. and Canadian equity indexes towards the highest levels of the year as of Wednesday’s close.

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Toronto’s bellwether S&P/TSX Composite Index expires nearly 14 percent from its January lows, clawing its way back to levels last observed in early December. The loonie has also taken flight, topping 77 cents US on Thursday

No one rings a bell at market bottoms, as the old adage goes, cheap crude prices finally ended their long decline just north of $26 per barrel is only clear in hindsight.

But Wednesday’s advance – driven by plans among major producers to go over output caps at a meeting in Doha, Qatar, the following month, plus a weaker greenback along with a smaller-than-expected uptick in U.S. crude inventories – served being an exclamation point on a rally which has surprised the skeptics.

Brent crude, the important thing international grade, can also be on the roll. It jumped nearly $1.60 a barrel Wednesday to shut at $40.33 on London’s ICE Futures Exchange.

The lows we had at the begining of February were probably the lows for the year.

Although Alberta’s energy producers are required to continue to announce layoffs, asset writedowns and hefty losses for the current quarter, with weaker players prone to disappear or perhaps be gobbled in coming months, happens has become set for a gentle industry recovery.

A year or two from now, most analysts expect prices to be higher – perhaps significantly higher – than they are currently.

“I believe, along with a growing chorus of people available, the lows we had at the begining of February were probably the lows for the year,” says Martin King, commodity analyst with Calgary-based FirstEnergy Capital.

“Every single day now, we’re tilting in direction of it as being a little bit tighter in terms of U.S. supplies. Refinery maintenance season is nearly over now, and demand still looks very good,” he adds.

“My prediction is the fact that global oil demand will actually hold up better still than the International Energy Agency has stated. So we are trending back to a much tighter market.”

U.S. crude output, which peaked at 9.7 million barrels a day (b/d) last year, continues to be trending lower for months now. It’s currently around 9.A million b/d and King expects it to decrease to roughly 8.4 million b/d through the other half.

As production drops elsewhere outside the Organization of Petroleum Exporting Countries (OPEC) and worldwide oil consumption continues to grow, he figures that should slowly sop up the current global supply surplus of about two million b/d.

King is hardly forecasting a return to triple-digit oil prices, of course. His current projections demand WTI prices to average just $37.25 a barrel this season, reaching a high of $45 by the fourth quarter, and $55 in 2017.

He also doesn’t rule out the potential of another dip in prices if oil traders begin to doubt the commitment of big global producers like Russia, Iraq, Saudi Arabia yet others to any output cap at their meeting in Doha on April 17.

“Prices happen to be partly talked up by this talk of a production freeze, but they have another whole month to help keep talking up the market,” says King. “So whether the market will see using that eventually I’m not sure. But traders do seem to be browsing the present high inventory levels and costs just keep marching higher.”

That said, King believes the underlying trend in crude prices is now up, not down, and he doubts that oil will slip underneath the $30 level again within this cycle.

“I think the underside continues to be set up now, and it is likely to be a gentle recovery from here. The boom times is a during returning. There’s likely to be a time of consolidation and rebuilding now, which could easily extend for over a year yet,” he says.

That’s little solace for that a large number of Albertans who have already lost their jobs, their houses as well as their businesses. However for those people who are still hanging on, there is finally a flicker of hope that better days lie ahead.

glamphier@postmedia.com