Effects of Oil Shock Felt Around the World

Effects of Oil Shock Felt Around the World
Photo by Rennett Stowe used as is under a Creative Commons Public License

Despite the efforts of OPEC+ and other oil producers, both Russia and Canada struggle to cut down oil production while keeping the energy sector stable in the face of a growing global pandemic.

Canadian oil production is centered in the province of Alberta and has seen the worst effects of the price collapse due to the high cost of oil sands production methods. While the nation’s oil sands industry has been on the decline for several years, the current crisis has hit oil workers especially hard. Major Canadian oil companies are shutting down wells and laying off large parts of their workforce as they struggle to stay afloat. Combined with the COVID-19 pandemic, Alberta’s Premier Kenney expects at least 25% unemployment in the province.

Prime Minister Trudeau’s reaction has been swift, he recently announced a $2.4 billion assistance program to remove abandoned oil wells, clean the polluted land and reduce the methane emissions of energy companies. This is estimated to create over 10,000 jobs in Alberta’s struggling economy and give many unemployed energy workers an economic lifeline.

Russia is in a similar position, with the economy losing 100 billion rubles per day on measures aimed at limiting the spread of coronavirus and a projected a budget deficit of 4.5-5%, reports Reuters. The country has also agreed to cut 20% of its oil production by the beginning of May to comply with the OPEC+ deal in an effort to reduce the oil glut that is collapsing global markets. Major Russian oil producers like Lukoil and Gazprom are considering options ranging from leaving unused wells under maintenance, permanently shutting down underproducing units or even burning excess oil to keep production running. However, even with the implementation of immediate production cuts, Russia does not expect the crisis to be resolved anytime soon.  

The Algerian energy minister, on a hopeful note, expects that prices will return to “$40 starting from the third quarter” if producers abide by May 1 targets, according to Anadolu. In the meantime, Russia and Canada will need to weather low oil prices while dealing with a slumping global economy and the high costs of quarantine measures without the usual revenue of the energy sector. 

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