Oil prices have rebounded in the last few months.
As of this writing, both WTI and Brent crude are around $50 per barrel.
But while one may think that this is great news Canada, a major oil producer, the country’s oil problems are just getting started.
As the Capital Economics Canada team opined in a recent note (emphasis added):
Higher oil prices has led to speculation that the worst is over for Canada’s economy. The evidence, however, indicates that lower investment in the oil & gas industry will hit the economy hard this year. And it’s only a matter of time before lower investment leads to lower production. […]
The downturn in the oil and gas industry is far from over and will restrain GDP growth this year,” they added.
The team notes that drilling has fallen to the lowest levels on record, which could lead to a 10% or more drop in production in the coming months.
And that drop would shave off 0.4 percentage points from monthly GDP growth, according to the team.
Notably, Canada’s oil sector has been hurt by the recent wildfires in Alberta, which led to as many as 1.1 million barrels per day being shut off.
Plus, the latest report on the Canadian labour market even noted that job gain weakness came mostly from Alberta, where the unemployment ticked up to 7.8% from 7.2%.