CALGARY — Fears of a tariff-driven recession have led to a steep drop in the price of crude oil, walloping Canadian energy stocks and stoking worry about the sector's outlook should the weakness persist.
West Texas Intermediate crude, the key U.S. benchmark, has lost almost US$10 over two days. The May contract dropped as low as US$60.45 per barrel on Friday, recovering some ground to settle at US$61.99, the lowest in almost four years.
Companies in the Canadian oilpatch are in "wait-and-see mode," said Mark Parsons, chief economist at ATB Financial.
"It's still early, but it's something you're watching closely," he said.
"If these low prices persist, you might be shaving something off your capital expenditure guidance for the year."
The energy index on the TSX closed down 8.7 per cent on a day when the overall Canadian stock market was off 4.7 per cent.
Parsons said Canadian oil and gas firms are better able to weather a potential oil downturn than when prices cratered in 2015.
"Relative to past cycles, the oil and gas industry in Alberta is running pretty lean these days," he said.
Balance sheets are stronger and capital is more focused on sustaining operations than multi-billion-dollar expansions.
The current pain is also offset by a narrower discount for the heavy oil produced in Alberta, in high demand from U.S. Midwest and Gulf Coast refineries, versus light U.S. crude.
Crude oil is the raw product used to make gasoline and diesel, so a drop in that cost should eventually flow through to the consumer.
The Canadian Fuels Association, citing 2023 data from Kalibrate Canada Inc., said crude oil represents about 42 per cent of the pump price, with taxes, refining, distribution and marketing making up the rest.
Price-tracking website GasBuddy.com said the national average for a litre of regular unleaded gas was 141 cents, a decrease of 12.9 cents from a week ago, before the consumer carbon charge was cancelled.
This year's Alberta budget is forecasting oil prices at US$68 per barrel and the provincial government says every US$1 drop in the WTI price during the fiscal year means a C$750 million hit to the provincial treasury.
About 90 per cent of Alberta's exports go to the United States, and of that, 80 per cent is energy products, said Parsons.
"That gives you sort of a scale of our dependency, not only on that market, but how concentrated that risk is to energy."
Parsons said before the U.S. announced "reciprocal" tariffs against trading partners around the world this week, there were fears Canada would be hit hard.
Canada was spared any new tariffs in Trump's announcement Wednesday, but is now contending with the knock-on effects of global economic woes possibly causing crude oil demand to plummet.
"As we know, when other countries we trade with ... catch a cold, we tend to get sick as well."
Compounding the demand worries was a decision earlier this week by OPEC plus, a group of major oil exporting countries to ramp up May production quotas.
"Taken together, the twin body blow represents the most bearish shock in oil markets since the March 6, 2020 collapse in OPEC plus talks to broker a co-ordinated supply response to the initial outbreak of COVID-19, which resulted in a brief — but extremely painful — price war between the Saudis and Russians, famously culminating in negative spot prices," wrote Desjardins Securities analyst Chris MacCulloch in a note.
He said the current crisis "pales in comparison" to 2020, but if trade wars continue "the damage could prove longer-lasting to the extent that it further destabilizes the post-war economic order."
This report by The Canadian Press was first published April 4, 2025.
Lauren Krugel, The Canadian Press
