So, it’s starting.

Civeo (formerly PTI Camps) is closing several camps, oilsand worker lodges, around Fort McMurray. Which means the traditional Alberta fall-back position – “I can always find work up north” – is rapidly drying up.

It’s not just that oil prices have gone into the dumper. It’s that they keep going deeper and deeper into the dumper. From $110 (American) a barrel in June to $100 in August to $90 in October, to $80 in November, to $70 in early December, to $60 last week, to $55 this week …

A chill is settling in. Big Oil’s top bosses are revising their 2015 marching orders. Hiring freezes, spending cuts, less capital investment than was anticipated. Cenovus is cutting spending by 15%. Husky will invest $3.4 billion in oil production, compared to $5.1 billion in 2014.

Even a month ago, they were speaking brave words about oilsands investments being long-term, immune to volatile day-to-day oil prices. Now they’re starting to sweat.

In late November, the oil patch semi-scoffed when CNRL oil company board chair Murray Edwards predicted a low of $30 before oil stabilized in the $70 to $75 range. They’re not scoffing anymore.

U of Calgary economist Jack Mintz, a man whose numbers are usually right, estimates the Prentice government will face an unexpected royalty revenue shortfall of $500 million in the last quarter of the current 2014/15 year.

If oil averages out to $60 a barrel, Mintz says the Alberta government will be down $5.7 billion from previously expected royalty revenues in 2015/16.

The province has already stopped hiring, is imposing spending restrictions, and may, even if it dumps the entire “rainy day” $5 billion contingency account into the 2015/16 budget, still have to find more spending cuts, take on more debt, or raise taxes.

Premier Jim Prentice has already promised not to raise taxes.

So just how long will this oil price trough continue?

Depends who you ask. ScotiaBank economist Patricia Mohr figures oil will rebound to $70 a barrel by late 2015 as the Americans stop drilling for shale oil, North American supply drops and the price goes back up..

Others say it’ll be years. American and Chinese demand is down, while world-wide oil production is up.

In the past, “swing producer” Saudi Arabia would cut its 10-million-barrels-a-day production to bring prices back up. No more – the Saudis, as low-cost producers of one-fifth of the world’s oil, are using this oil oversupply as a way of increasing market share. The Saudi strategy, some analysts say, is to keep sending cheap oil out into the world, forcing high-cost regions, like the Canadian oilsands and American shale oil, out of business.

So how will all this affect Edmonton? I wrote just weeks ago that the local economy would slightly cool, but that would not be a bad thing. But at the start of December, oil was at $70 and has now dropped to $55 and nobody knows where the bottom is.

If oilsands companies jam on the brakes in the next few weeks, severely cutting both capital and operational spending, it will impact on Edmonton far more than was foreseen scant weeks ago.

If oil prices stay below $55 for the next few months or years, real estate prices will soften, new jobs will be hard to find and wages will drop. The CMHC says housing prices in Fort McMurray will likely fall by 5.2%.

It’s not going to be all that bad, says RBC bank Chief Economist Craig Wright. Alberta’s growth in 2015 has been revised downward from 3.5% to the national average of 2.7%. “Quite respectable,” says Mr. Wright.

Doesn't matter. We’ve lived high off the hog in this province for years. Any contraction will severely hurt.

If oil prices stay under $55 for three, six, 12, 36 months … I’d hate to be a developer with a condo tower going up, while real estate prices are going down.

 

Factoids:

Alberta produces 3 million barrels of oil a day, most of it going to the USA and sold at world prices. World oil prices, however, are in free fall, and show no signs of recovery.

The price per barrel of West Texas Intermediate oil over the last seven months, in American dollars:

June 12 - $107.20

July 3 - $104.75

Aug. 7 - $97.34

Sept. 4 - $94.51

Oct. 2 - $91.02

Nov. 6 - $77.87

Dec. 5 - $65.84

Dec. 12 - $57.81

Dec. 22 - $55.25

Dec. 30 - $54.12