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Page added on October 17, 2014
Oil’s crash threatens to derail booming Alberta – and Canada too
Like most other regions of the country, gas prices around the Greater Toronto Area are in a nosedive, hovering around $1.17 a litre on Thursday or two pennies cheaper than earlier in the week.
Across the country in Calgary, gas is even cheaper with some stations selling car fuel for $1.06.
Morning commuters who slog into both cities are raving about the low rates as oil prices decline further from their summer peak — now down 30 per cent since June — forcing suppliers to drastically cut retail gas prices to levels not seen in nearly two years.
The drop is providing a boon to consumers who suddenly have smaller fuel bills and more spending money in their pocket.
“Because gasoline prices are falling so quickly we will see a net positive impact initially,” Sal Guatieri, senior economist at Bank of Montreal said.
But the longer the slide in oil continues – now around $85/barrel – the more likely consumers will need to start saving that spare cash to help cope with a downturn in the economy, experts say.
Average retail gas prices in Vancouver, Calgary and Toronto over the last half year.
Gasbuddy.com
Harder fall
And for booming provinces like Alberta and Saskatchewan, who have relied on oil to help fuel their fortunes in recent years, the fall could be harder than in other areas of the country where conditions have been less robust.
“The biggest negative impact is the cutback in production in the three oil rich provinces, Alberta, Newfoundland and Saskatchewan,” Guatieri said. “Which means their economies will take a bigger hit than the national economy.”
MORE: Job creation has flatlined across Canada – except in Alberta
Those economies have been economic leaders over last couple of years, said Guatieri, with Alberta and Saskatchewan pumping out jobs and instilling much-needed confidence in Canada’s economy for consumers to go out and spend.
Oil’s plunge, sparked by recession fears in Europe and China, is now shaking that foundation.
“There is reason to be concerned that some people in the oil industry will lose their jobs if oil prices hit $80,” Guatieri said, “or fall further.”
“Consumer spending has been quite strong in Alberta in particular, while growth has been strong. But that will take a hit,” the BMO economist said.
Broader hit
But the fall in oil will also hit the national economy in more than a few ways. To start, crude oil and refined petroleum products account for roughly a quarter of Canadian merchandise exports, according to Scotiabank experts.
Businesses based across Canada that feed into the sector, like railroads, engineering firms, construction companies and equipment makers will also be sideswiped if the decline leads energy producers to pull back production. Twenty-five cents of every dollar invested in new business plans goes toward oil and gas projects, Scotia estimates.
If exports and investment in the energy sector take hits, experts suggest the broader economy will feel the chill and begin to slow.
“Canada’s economy is now very oil dominated,” economists Rory Johnston and Patricia Mohr at Scotiabank said a few months ago as the Northern Gateway project was being approved by Ottawa.
U.S. demand
Still, the darker outlook for oil prices has a silver lining.
Even as global economies shudder, there’s growing momentum in the U.S. market place – the largest economy in the world and Canada’s largest trading partner by a wide margin.
If demand for oil continues to accelerate south of the border – as Guatieri and others expect it to – the shock to Alberta’s economy as well as Canada’s could be a fleeting one, he said.
16 Comments on "Oil’s crash threatens to derail booming Alberta – and Canada too"
Makati1 on Fri, 17th Oct 2014 9:22 am
“If demand for oil continues to accelerate south of the border…”
Really? “…At the height of summer driving season, petroleum demand dropped 2.7 percent from a year earlier to 18.062 million barrels per day.(EIA)
“…In 2013, the United States consumed a total of 6.89 billion barrels of petroleum products, an average of 18.89 million barrels per day.1 This total includes about 0.32 billion barrels of biofuels….” (EIA)
The math I learned in school tells me that 18.062 is SMALLER than 18.89.
Maybe they meant south of the Russian border? Certainly not the US border.
Plantagenet on Fri, 17th Oct 2014 11:33 am
If the US economy takes off, as Obama keeps proclaiming is happening, then oil demand will go up.
We just have to wait and see what actually happens.
Brent on Fri, 17th Oct 2014 6:20 pm
I am confused if nobody was making any money with oil at 100 dollars how are they going to make any money at 80?
Northwest Resident on Fri, 17th Oct 2014 8:10 pm
Brent — Great question, same one I’ve been asking. The conventional oil producers, most of them — like SA, Russia and others — have been making obscene amounts of money with the $100 per barrel, and they probably will do just fine at $80 per barrel — most of them with a couple of notable exceptions.
But for unconventional high-cost producers, perhaps a better way to frame that question is:
If fracking and other unconventional oil producers were losing their ass at $100 per barrel, how in the world will the Fed be able to print enough money to cover the debt they need to maintain the illusion of a viable business at $80 per barrel?
Kenz300 on Sat, 18th Oct 2014 8:57 am
The Saudi’s are doing what they can to limit competition and push their competitors into bankruptcy.
We may get lower oil prices in the short term but long term they are still going up.
The less you rely on oil the better.
Boat on Sun, 19th Oct 2014 6:53 am
Brent, if you want to read a lot of disinformation on fracking come to this web site. Billions have been made on fracking and it has been good for the economy. In fact the cheap nat gas from fracking has allowed refiners to use it for a fuel source for refining oil to gasoline and we now export petroleum products at the tune of around 2 mbpd while refineries in Europe are shutting down.
Davy on Sun, 19th Oct 2014 8:03 am
Boat you make a valid point. Our country has the “right stuff” to realize a comparative advantage with fracking. But I will throw cold water on too much glory to this industry. Boat, you cannot explain away the huge debt as partially responsible for this sector’s boom. You have to also include a favorable oil price that is dangerously near the envelope of what is economic. Then you should at least consider Shorts thesis here on the thermodynamic reality of Shale. A very complicated topic indeed.
Boat on Sun, 19th Oct 2014 9:13 am
Institutional investors supply much of the money with the idea to make money. If they invest in fracking for example and the industry loses a lot their share price drops and they get fewer investment dollars compared to the investor that didn’t bet on a loser. This is how capitalism works regardless of the industry. Smarter investors over time survive and others don’t. Sometimes I think you guys over think simple supply and demand.
JuanP on Sun, 19th Oct 2014 9:15 am
Boat, How long do your meds last? You definitely are a cup half full kind of guy! 🙂
JuanP on Sun, 19th Oct 2014 9:20 am
Boat “Sometimes I think you guys over think simple supply and demand.”
We are not over thinking, Boat. You are not thinking enough! It isn’t the same thing.
Some people are smarter than others and think more. While it is relatively easy for me to understand you, you will never be able to follow my thoughts because you lack the necessary intelligence and education. Chew on that for a while, under thinker!
Davy on Sun, 19th Oct 2014 9:40 am
Boat, this time is different. We are in a new normal that cannot be analyzed by past fundamentals. The past fundamentals are still relevant but the traditional tools of analysis are no longer relevant without clarifications. Financial repression, market manipulation, and legalized corruption is at every level. This time is different NOo and Boat. Take your blinders off and see the bright sun.
Boat on Sun, 19th Oct 2014 10:16 am
tks to quantitative easing I just locked in a interest rate at 3.26 on a home that is hundreds less per month that it would have been just 10 years ago. It is bigger, nicer, pool etc and cheaper than my home of 10 years ago.
Debt? It is just a number on a piece of paper that is fine as long as you can afford the payment. It is much better to have high debt and invest than pay it off and not invest. Just the facts of life.
I have to drive a lot but get 38 mph. The car is more expensive but is net cheaper compared to my old truck I drove which could pull out a tree but got 7 mph. So net I am much better off with the car and house for less money. And you call this a crash and decline. I just don’t get it.
JuanP on Sun, 19th Oct 2014 10:33 am
Boat, You remind me of my father’s boasting when things were going well for him. He had a 60k yearly income, had no debt at all, owned outright a half million dollar home with pool and tennis court, and had a quarter million in cash in savings. He then lost his job at 38, and never recovered. He was very lucky that his father in law was a 1%er in a growing world. It did hurt his pride, though, he was destroyed by the experience.
I fear we will be less lucky than my father. I do hope you are right and I am wrong. I envy your glass half full perspective.
Boat on Sun, 19th Oct 2014 10:35 am
The bible talks of Jesus throwing out the money lenders from the temple. Corruption is the norm, nothing has ever changed. Yet hundreds of millions of humans can express their fears on computers warm and cozy after a great meal. Lets celebrate a few of the good things in the world and be glad we weren’t born Neanderthals.
Davy on Sun, 19th Oct 2014 11:06 am
Boat as I told Half the other day I live his life recommending enjoyment and thanks but I opine doom. There is a difference. That does not mean one should close their eyes. Too many depend on us to remain vigilant.
Kenz300 on Sun, 19th Oct 2014 11:21 am
And the competition from second generation biofuels continues to grow…….. the fossil fuel industry hates that……….
——————————-
New Biofuels Facility Converts Plant Waste To Ethanol, Is 90 Percent Cleaner Than Gasoline
http://www.huffingtonpost.com/2014/10/17/biofuels-plant-waste-ethanol_n_6001670.html