Effects on the future of Canada’s economy remain to be seen
Canadian oil prices have dropped to a five-year low mid-way through October due to a yield in demand from major importing economies. Gas prices in the GTA have been hovering around $1.15 over the week, while further west, Calgarians have seen a drop as low as $1.06. This sharp decline in price has shown a 30 per cent in prices from June.
While many rush to the pumps to fill up, economists warn that Canadians will feel the negative effect of this price drop in future months. Oil accounts for about a quarter of Canadian merchandise exports, and as such, this accounts for a large portion of Canadian Gross Domestic Product (GDP). A decline in demand for Canadian oil for a long enough period of time could prove to slow Canadian economic growth.
Many Albertans are wondering if this drop in price will lead to similar conditions to the 2008 crisis, which put a halt to many high-cost development plans. Progressive Conservative Premier Jim Prentice says that Albertans should not worry yet, as budget predictions for the province had previously underestimated oil prices, leaving some room to breathe. These previous estimations had, until recently, left the province hoping for an oil budget surplus; however, recent developments clearly state otherwise. The question remains as to how long this decline in demand is going to last, and how long the previous surplus can balance out the budget.
With an unstable oil industry, many fear that other markets will soon suffer. Alberta sees a lower-than-average unemployment rate, as the booming oil industry has previously been a hub for the job market. Many fear that the job market and unemployment rate, alongside the real estate market, will suffer if less people migrate to Alberta for jobs.
As international demand for Canadian oil declines, some hope for producers to drive up the price by slowing production. The proposed shortage would hike up prices to average levels; however, firms are reluctant to do so in fears of losing international market shares. Many Canadians consumers are left wondering what strategy oil firms will use to cushion the blow to the economy – and what it might mean for their pockets.
As prices have already started to increase, it seems that Prentice may have been correct in reminding Canadians not to worry. The development of Canada’s economic future will be highly affected by the price of oil of the next few weeks. Economists will observe the market closely in order to better predict what’s to come for Canadians. In the meantime, however, it might be time to take that long-awaited road trip or fill up a few jerry cans while the prices are low.