A battle for market share between Saudi Arabia and Russia has left oil prices reeling. The West Texas Intermediate price benchmark ended Monday down by about 25 per cent—the biggest one-day drop since the 1991 Gulf War. The Western Canadian Select heavy oil benchmark plummeted by 36 per cent. A barrel of oil is now selling for about half of what it was at the start of the year.

Most observers were assuming that OPEC and Russia would leave their meetings in Vienna last week with a new deal designed to shore up oil prices in the face of the dampening economic effects of COVID-19. Not only was no agreement reached on a supply cut, Saudi Arabia and Russia both made announcements over the weekend that they would be increasing production. 

The rift between the two oil juggernauts is apparently due, at least in part, to Russia’s impatience with cutting its production while U.S. oil output has reached record levels. Whatever the reason, Alberta’s economy is caught in the crossfire.

At the same time, the COVID-19 outbreak led the International Energy Agency (IEA) to cut its forecast for oil demand in 2020 by 1.1 million barrels per day. If the forecast proves accurate, annual oil demand will decline for the first time since 2009.

The big question now is how long will this double whammy of increased supply and reduced demand last? 

The IEA’s forecast assumes the dampening effects of COVID-19 will wear off by the second half of the year, but this depends on successful containment of the virus.

It’s even harder to be certain about what will happen with the price war between Saudi Arabia and Russia. Early indications suggest that both sides are digging in for a prolonged fight. If this is the case, oil prices are likely to be soft for some time.

At least for now, Alberta will simply have to weather the economic storm low oil prices will bring.