Oil’s crash threatens to derail booming Alberta – and Canada too
Watch above: The price of oil is sitting at a level significantly below what the provincial government forecast at budget time back in March. As Tom Vernon reports, it’s going to have an impact on the bottom line in Alberta.
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.
READ MORE: Why gas prices are falling across Canada
“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.
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.”
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.
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.
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.
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