Written by Frehiwote Negash
When Oil prices crossed the $100 per barrel threshold in 2008, there was a prevailing thought that this might be considered the new normal. Oil prices have crossed that benchmark numerous times in the last 6 years hitting $115 as early as June (Isadore, 2014). Since then, oil prices have dropped over 50 {92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} in the last 7 months; a staggering drop for a popular commodity. With Saudi Arabia’s Petroleum Minister announcing that Opec will not cut oil production regardless of the price per barrel, the days of $100 per barrel of oil are officially over (Defterios, 2014).
Countries like Canada and Russia are net energy exporters with oil being their largest export. While sanctions might have limited Russia’s economic prospects, the fall of oil prices has done more to damage their economy as evidenced by the free fall of the ruble last week. Yesterday, the Canadian dollar hovered near its 5 year low today hitting .85 against the American dollar (Nguyen, 2014). While the performance of the American dollar is boosted by its strengthened economy, the fall of the loonie can be attributed to fluctuating price of commodities, oil being the trigger point. Other oil producing countries such as Norway also suffered as the krone also hit a 5 year low upon the Opec announcement (Nguyen, 2014). This serves to further complicate things for non- Opec countries as the surplus of oil on the market will force them to slow production substantially and cancel future project in order to stay competitive.
As oil prices drop, Canadian consumers are delighted at the prospect of paying a little over a $1.10/l at the pumps during the holiday season. While it is clear that consumers benefit directly from lower oil prices, the same cannot be said for investors, governments and their respective economies. The recent fall in oil prices has had a massive impact on world markets. It has triggered panic selling forcing governments to act swiftly and adjust to the new reality. The price of oil is a major indicator for government projections. It helps governments determine how they plan and execute annual budgets. It can determine foreign policy and the outcomes of elections. In the short term, consumers see more money in their pocketbooks. However, with the free fall in oil prices and a weaker loonie there will be by-products of this crisis that affect all Canadians by way of government policy. Consumers have to remember that the loonie is a commodity currency so as the oil goes, the loonie goes.
For Canadians heading south for the holidays, that means less bang for your buck. For Albertans, lower oil prices means less in the public coffers as Premier Jim Prentice announced yesterday that Alberta will be $7 billion short of their estimated windfall (Curry, 2014).if you live in Southern Ontario, the hope is that the lower dollar will help boost the flagging manufacturing sector. The price of oil has created ripple effects in the Canadian economy but a sustained period will cause a tidal wave that affects every Canadian.
Works Cited
Curry, Bill. “Dropping loonie, sliding oil price redraw provinces’ economic pictures” Last accessed December 24, 2014. http://www.theglobeandmail.com/news/politics/federal-budget-revisions-shake-up-provincial-finances/article22184872/
Defterios, John .”Saudi Arabia: We’ll never cut oil production.̎Last accessed December 23, 2014. http://money.cnn.com/2014/12/22/news/economy/saudi-arabia-oil-production/index.html?iid=EL
Isadore, Chris. The end of $100 a barrel oil. Last accessed December 23, 2014, http://money.cnn.com/2014/12/23/news/economy/saudi-oil-minister-100-dollar-oil/
Nguyen, Lannah. ”Loonie near 5-year low as U.S. economy surges”. Last accessed December 23, 2014. http://www.bnn.ca/News/2014/12/23/Loonie-near-5-year-low-as-US-economy-surges.asp