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Plunging oil prices point to 'deep collapse' in sector, drilling firm CEO warns

Last Updated Apr 21, 2020 at 2:04 pm PST

Gas prices are shown on a sign at an Esso station in Whitby, Ont., east of Toronto, on Wednesday, March 18, 2020. On Tuesday, U.S. benchmark West Texas Intermediate oil future contracts for June delivery settled down US$ per barrel, adding to a decline of US$ on Monday. THE CANADIAN PRESS/ Doug Ives

CALGARY — The CEO of one of Canada’s largest drilling rig contractors says plunging North American crude prices on Monday and Tuesday are signs that the oil industry is headed for a “deep, deep collapse.”

On Tuesday, U.S. benchmark West Texas Intermediate oil future contracts for June delivery settled at US$11.57 per barrel, down US$8.86. With Monday’s decline, the price is down more than 57 per cent in just two days.

On Monday, the WTI contract for May delivery fell US$55.90 to US-$37.63 per barrel — which means contract holders were paying others to take the oil off their hands. On Tuesday, contract expiration day, the amount returned to positive territory, settling at US$10.01.

Precision Drilling Corp. CEO Kevin Neveu says watching WTI fall negative for the first time in history on Monday was “shocking” for a longtime oil industry participant.

He added he expects spending on oil and gas exploration will fall even further from current, already-depressed levels because of the pricing signals.

Analysts say oil prices are down on oversupply concerns, because storage tanks are nearly full and refineries are reducing output amid slow economic activity during the COVID-19 pandemic. 

“Our customers are concerned because they’re selling their oil and gas products right now into markets that are volatile and quite low priced,” Neveu said.

“Access to capital is completely turned off. We’re seeing more and more news of companies that are failing and have to restructure their debt.

“I think we’re sliding down into a deep, deep collapse of the industry right now.”

This report by The Canadian Press was first published April 21, 2020.

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The Canadian Press