As Fort McMurray prepares to enters the second week of a vicious wildfire that has destroyed a large swath of the northern Alberta town, there is speculation that the disaster may have consequences for the whole of the Canadian economy.
Fort McMurray, of course, is strategically important to the price of crude oil because of its proximity to the oil sands. The oil sands themselves are not in the path of the fire, but they have been affected because they are not presently staffed at full capacity. As the region produces half of Canada’s oil, this has already driven up the price of crude oil. While there is presently a glut of crude on the market, at least one expert says the Fort McMurray wildfire may whittle away at that.
“Ultimately, will this mean that the global surplus of crude will get winnowed down faster than we thought previously,” said Judith Dwarkin, who is chief economist at RS Energy Group in Calgary. “It really depends on how much is shut in and how long it’s shut in, and we just don’t know at this point how quickly the operators will be able to re-establish production at previous levels.”
But the economic impact of the fires may have even larger implications, some say. Robert Kavcic, who is BMO’s senior economist, notes that GDP in Canada’s energy sector fell 4.2 per cent because of fires wildfires that destroyed parts of Slave Lake, Alberta five years ago this month, in May of 2011. Statistics Canada said those fires and the maintenance shutdowns that accompanied them. contributed to a real GDP that contracted by 0.1 per cent.
Below: Fort McMurray evacuated during massive wildfire
“That was big enough to pull Canadian growth down into negative territory temporarily, at least, for one month,” he said.
The Fort McMurray fires, however, are a natural disaster that is likely to be on a economic scale the likes of which are economy hasn’t seen before. Reuters this week reported that the insurance bill for the fires is expected to be “several times” that of Slave Lake, owing to the scope of the blaze and the fact that building are more expensive in Fort McMurray.
“If you’re looking at four times that of Slave Lake you’re getting to well over $2 billion (Canadian) so there is a possibility that this may become the biggest catastrophic claim in Canada,” said Stewart McIlwraith, an analyst with DBRS.
The Fort McMurray fires are also expected to exceed the C$1.9 billion in losses caused by the Alberta floods of 2013. As a result shares of Canadian insurer Intact Financial fell in the four days following the outbreak of fire in Fort McMurray.
As of Friday, the entirety of Fort McMurray’s 88,000 residents had been evacuated and the province had declared a state of emergency, which premier Rachel Notley noted would ensure that the federal government pays some of the costs of battling the wildfire. More than 1600 structures have already been destroyed with tens of thousands more threatened.
“This is a nasty, dirty fire,” Fort McMurray Fire Chief Darby Allen told the media Wednesday.
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