Still-Raging Western Canadian Fires Having an Impact on Industry, Pricing

There seems no end in sight regarding the oil fields fires burning in Canada's Alberta province. Beyond the human toll--the wildfires have destroyed thousands of homes and forced the evacuation of more than 100,000 people--it is already affecting the per barrel price of oil. Soon, the impact on the insurance sector will be felt as well.

The government in Canada, which provides more credit-based customers to NACM members' companies than any other country outside of the United States, was heading for a deficit before all this. Now that likelihood has ballooned to perhaps unmanageable levels. This is a disaster on par with hurricanes and earthquakes and it is still getting worse.

That said, it may help some U.S.-based suppliers and services providers in and tied to strong pricing the domestic oil industry, as the fires have created the most important change in the oil world of late. Canadian output is aimed primarily at the U.S. market. This conflagration has been out of control for weeks and could be throughout the summer. The estimate is that there has been a one million barrel a day loss thus far. This is a fifth of the country’s production.

Granted, this lack of production is going to have a ripple effect in some parts of the United States.  Refineries in the middle of the country will have less access to oil and they will see the price of crude rise. That means that local gas prices in the middle of the country will start to rise sooner than later. In addition, rail companies in the region that invested so much in hauling oil along Canadian routes may face trouble staying afloat financially.

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

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