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Even though the price of West Texas intermediate crude oil has more than halved since late June, the doomsday scenario for the Canadian oil sands is still quite a ways off.

That's the conclusion reached by Peter Ogden, analyst at the Bank of America Merrill Lynch, who found that price of crude would have to drop below $35 (U.S.) a barrel before most of the nation's eight largest projects, which account for 40 per cent of total production, would turn cash-flow negative.

A retreat to Great Recession lows in crude for a number of months seems to be a prerequisite for major shut-ins, and the futures market and oil experts don't think this is going to happen. Admittedly, neither predicted that oil was going to sink to these levels in the first place.

But in the event that low prices force North American production to be curtailed, it wouldn't be surprising if U.S. shale plays – which have shorter lifespans, require more capital spending to maintain production, and can be ramped up fairly quickly – would come under the knife before projects in the Canadian oil sands.

Despite the low odds of an oil sands apocalypse, however, the near-term outlook for Alberta is still dire. In fact, it's difficult to find areas of the economy to be optimistic about. The segments that should hold up the best amid the plunging crude price are inventories and net exports, as oil production is still expected to grow and falling capital expenditures require less imported equipment.

But there's much more bad news than good. For one, we're starting to see the first signs of cost-cutting measures – or, as Royal Dutch Shell PLC prefers to call them, "adjustments to the organizational structure" – in the oil patch to protect the bottom line. Oil field service companies are likely to endure more precipitous declines in payrolls if Civeo Corp.'s 30-per-cent reduction in Canadian staffing levels is any indication, and the broader economy may not be immune from the fallout. The high likelihood of a substantial drop in earnings growth and the potential for an outright decline in employment or hours worked dim the prospects for consumption growth.

Capital expenditures are also set to take a well-telegraphed tumble. After examining guidance provided by energy companies, Scotiabank chief economist Derek Holt said that "15 per cent would appear to be an absolute minimum amount by which one might expect capital spending to be reduced this year over last."

The provincial government is poised to undertake some belt tightening as a reduction in royalty revenues darkens its financial position, so there may well be an element of fiscal drag at play, to boot.

Alberta's population growth has helped its housing starts decouple from the rest of Canada since 2012, surging while the other provinces' flatlined. The collapse in the price of oil means "Go West, young man" isn't as attractive a call as it was six months ago. Interprovincial migration into Alberta should wane, with residential construction activity following suit.

No one's raising the spectre of a certain dreaded "r"-word for Alberta just yet, but that's mainly because most economists are predicting a more cheery word with the same first syllable – recovery – in store for the price of oil.

Follow Luke Kawa on Twitter: @ljkawaOpens in a new window

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