CALGARY, Alberta (Reuters) - The Canadian province of Alberta, whose oil sands are the single largest source of U.S. oil imports, may be poised to slip into recession as investment in the petroleum sector plunges due to low crude prices, a research group said.
In a recent report, the Conference Board of Canada said the province of four million will see rising unemployment as the price of oil, its largest export, continues to plunge to less than half what it fetched in June and oil companies slash investment to cope with lower returns.
“You’ve essentially cut your revenue stream in half in terms of oil revenues,” said Pedro Antunes, deputy chief economist at the Conference Board. “That will have important repercussions and it will trickle down through all parts of the economy though we are most concerned about investment.”
Nearly all of Canada’s big oil companies have cut their capital budgets for 2015, with Canadian Natural Resources Ltd saying this week it would further cut its spending by 28 percent and delay a big oil sands project because of low oil prices.
There have been few indicators so far that show the effect of oil prices on Alberta’s economy. In December, the province’s unemployment rate rose just 0.2 percentage points to 4.7 percent, below the national rate of 6.6 percent.
Housing starts in the province in December, at 2,495, were similar to year-prior levels while prices rose 10 percent to C$630,758 ($528,008), Canada Mortgage and Housing Corp reported.
However Antunes said he expects the effects of the investment cuts to show up soon, much as they did when the province was last in recession during the 2009 financial crisis. Then investment in the province fell by C$18 billion, 30,000 jobs were cut and housing starts fell by 75 percent.
“We should start to see some of the ramifications of this fairly quickly,” he said.
To be sure, the Conference Board’s expectation that the Alberta economy will slip into recession is not yet shared by many others. CIBC Economics said in mid-December that Alberta would likely see growth of 1.7 percent this year compared to an expected 4.1 percent in 2014.
However Peter Buchanan, an economist at the bank, said the forecast assumed oil will average $70 per barrel, a level that may be too optimistic, given recent prices of close to $45.
Reporting by Scott Haggett; Editing by Meredith Mazzilli