BUSINESS

'Nothing In Analyzable History' To Compare To Oil Price Crash, Analyst Warns

07/27/2015 01:14 EDT | Updated 07/27/2015 02:59 EDT

  • Worst oil price crash in 45 years, Morgan Stanley says
  • Nearly one-third of $200B in cancelled projects are in Canada
  • Energy industry now a drain on job growth

Anyone hoping for a quick recovery in oil prices should prepare to be disappointed.

What looked like a bounce-back in oil prices a few months ago has now officially turned into yet another bear market. North American oil prices have fallen around 22 per cent in the past month, to around $47.50 U.S. a barrel, from $61 U.S. a barrel.

The slowdown in the industry continues unabated. Oil and gas producers have shelved $200 billion in projects worldwide thanks to the price meltdown, consultancy Wood Mackenzie estimates, according to a report at the Financial Times. Of the 45 cancelled projects, nearly 30 per cent are in Canada, the report said.

In a separate report, Bloomberg said it’s becoming increasingly difficult to find investors who are bullish on oil. The number of investors betting on growth in oil prices has fallen to a two-year low, while the number of investors betting on a decline in oil prices spiked by 25 per cent in a week, the analysis said.

west texas intermediate price

West Texas Intermediate prices for the past three months. Source: NASDAQ

Many industry insiders are now predicting oil prices will stay low at least for the remainder of this year, thanks to high production levels among OPEC countries, particularly Saudi Arabia. Some analysts see oil staying at levels similar to today’s for the next five years.

In a report issued last week, investment bank Morgan Stanley said it looks likely the world is experiencing its worst oil price crash in 45 years.

"On current trajectory, this downturn could become worse than 1986," Morgan Stanley’s managing director for equity research, Martijn Rats, wrote in a client note cited by Business Insider.

He said Morgan Stanley had been expecting the current downturn to be as bad as the infamous 1986 price collapse, but not worse than that. Now, with oil taking a second swan dive, he thinks the oil price collapse could be unprecedented in scope.

"If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term. ... In fact, there may be nothing in analyzable history."

For Canada, this inevitably means more pain in the oil patch.

“I think we are probably over the hump of the majority of layoffs but I don’t think it’s quite over yet,” Todd Hirsch, chief economist at ATB Financial, told the Edmonton Journal earlier this month.

“Over the summer months we will see, I think, a few more probably big announcements and some more layoffs in that oil and gas sector.”

That's actually an optimistic forecast, at least compared to PetroLMI's prediction that a quarter of Canada's oil-related jobs -- some 185,000 jobs -- will disappear this year.

Natural gas producer Encana last week announced 200 layoffs, after recording a $1.6-billion loss for the latest quarter. Share prices fell some 10 per cent Friday on the news.

Canada’s mining, oil and gas sector shrank by 6.4 per cent in the 12 months to April, according to data from StatsCan. Employment in natural resources fell about 2.2 per cent in the year to June.

The Bank of Canada had initially expected the shock to Canada’s economy from low oil prices to be “front-loaded,” meaning it expected the damage to occur mostly at the beginning of this year.

In a sign it now expects the slump to be deeper and the recovery to take longer than it had first expected, the Bank of Canada lowered its key lending rate earlier this month, to 0.5 per cent.

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