Brent crude prices fell below $90 U.S. per barrel, hitting their lowest point in a couple of years.
CIBC economist Peter Buchanan says “with many oil projects only breaking even at the $80-a-barrel mark, we could see investment in Canadian oil drop off quickly if prices keep falling.
BMO economist Robert Kavcic estimates Alberta will be out $1.2 billion in oil royalties if prices stay this low (though nearly half of that would be offset by the lower loonie). And Newfoundland “would have some serious thinking to do” about the future of its oil industry if prices stay at these levels.
So far Canadian oil drillers have avoided the worst of it, thanks to a sliding loonie which has made oil exports pricier when counted in Canadian dollars.
Still, one major effect of lower oil prices is lower gas prices which have fallen about 14 cents per litre over the past two weeks.
Therein lies the tension in Canada’s economy: when oil prices rise, energy producing provinces get richer, and other parts of the country get poorer. And it’s just the opposite when oil prices fall.
So which effect is more important? CIBC’s Buchanan says the negative effects of lower oil prices outweigh the positive effects “by a sliver.” And good luck convincing motorists in central Canada they should be cheering for higher oil prices.
(Source: Huffington Post Canada)