Summertime, and the oil patch is uneasy

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Ah, nothing beats those carefree days of summer – warm weather, cool drink, maybe a good book and the frantic sell-off of every energy-company share in the country.

That was what it felt like on Monday, when crude prices sank below $50 (U.S.) a barrel for the first time since April, triggering what some investors characterized as a long-feared capitulation in the stock market.

Only the gold miners fared worse than the oil producers on the day, and that's saying something, given the energy sector, as measured by the S&P/TSX energy group, fell 3 per cent to its lowest since the financial crisis in 2009.

It's enough to make you spill your iced tea.

Now, here come the industry's earnings reports, accounting for a second quarter in which oil prices were down by about half versus the year before. Encana Corp. is scheduled to lead off the oil-patch reporting season on Friday, and analysts, on average, expect cash flow to be down 65 per cent, according to Bloomberg.

It should come as no surprise to anyone that results from big companies, and small in most cases, will be starkly weaker. Heck, the industry's woes have been all over the news this year, as has been the impact on the Albertan and Canadian economies.

The big focus, instead, will be on how executives plan to deal with an industry outlook that has, if anything, darkened in the few weeks since the end of the quarter.

Markets are worried anew about a flood of Iranian oil exports adding to a worldwide glut in the aftermath of a nuclear limitation deal, even if that is still months away. Meanwhile, some members of the Organization of the Petroleum Exporting Countries, such as Saudi Arabia, are pumping record volumes of crude.

Questions have emerged about the health of the economy in China, which has been taken for granted as a fail-safe destination for oil. In the United States, shale-oil production has so far held up despite deep spending cuts by producers in regions such as the Bakken in North Dakota and the Eagle Ford in Texas.

It's all overshadowing the few bright spots that blunted the impact of oil's collapse in the past three months. One was an unusually narrow discount for heavy oil versus the U.S. benchmark. Another was a diving loonie, which translated into fatter export revenue for producers selling crude denominated in U.S. dollars.

Here's the commodity price scoreboard: West Texas intermediate oil averaged $57.85 a barrel in the second quarter, down from $103.06 a year earlier, according to Peters & Co. Ltd. The discount on Western Canadian Select heavy oil blend was $9.27, compared with $22.46 in the second quarter of 2014.

Alberta natural gas at the AECO storage hub averaged $2.68 (Canadian) a gigajoule (one-billion joules), down 43 per cent.

A swoon in earnings measured against the same period last year is widely expected, although there should be improvements at some firms from the first quarter, when WTI oil averaged just $48.57 (U.S.) a barrel.

But that's all so last quarter ago.

Up until recently, there were a few forecasters who had said there was an outside chance for a recovery by around the middle of 2015 and, of course, it didn't happen. Adding to uncertainty, the heavy-oil discount has widened again, to about $15.50 a barrel, according to oil broker Net Energy Inc.

The murkier industry picture will likely prompt some more hatch-battening following rounds of deep budget staff cuts.

Encana, which invested $9-billion in new oil properties last year, insulated itself by issuing $1.4-billion of equity earlier this year to help shore up its balance sheet against a stretch of sharply lower commodity prices, so it might be able to hold off on drastic moves.

Other companies with high debt, falling production and dwindling cash flow to invest in drilling will look again for places to cut spending and employees, exacting further pressure on the Alberta economy. Some will have to start signalling to investors that they cannot hold out much longer and will start formal searches for buyers in a market trough.

It won't make for the most pleasant summer reading.