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As bad as 1998, 1985 or even 1890s? Lets take a look on Canada’s oil crash

Is lengthy oil price decline that began almost two years ago as bad as 1998? 1985? Or even the 1890s?

01.Jun.16 8:18 AM
By Anastasia Sutulova


As bad as 1998, 1985 or even 1890s? Lets take a look on Canada’s oil crash
Oil and natural gas prices have fallen by more than 50 percent since late 2014, which has led to a severe contraction in the Canadian oil and gas industry.

Statistics that highlights the first quarter of 2016 can be summarized as follows:

Firstly, nominal cash flow has been lowest since the 1990s. As cash flow is the dominant source of investment, its decrease, obviously, does not represent a positive tendency.

Secondly, declining investment equals declining production. It had not yet been recorded a year ago. But in 2016, conventional oil and natural gas output is expected to drop.

Thirdly, rig activity is down to lowest levels. This winter, usage of equipment could only be compared to the idle “spring breakup” period in normal years.

Finally, last year, COGL (petroleum and natural gas exploration, development and production company) reported an income statement loss. It is estimated that in 2016 the loss will be even greater. This means that corporate income taxes from oil and gas producers will be net zero.

None of the indicators for 2016 are looking positive. However, such unsustainability is not unique to Canada’s oil and gas industry. Contraction of productive capacity across the world has a momentum in 2016 that will not be changed without price recovery. In short, we can look to Canada’s exceptionally weak figures as a transparent case study for inevitable commodity price recovery.

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