An oil worker holds raw tar sand near Fort McMurray, on July 9, 2008. THE CANADIAN PRESS/Jeff McIntoshJeff McIntosh/The Canadian Press
As Central Canadians marvel at the prospect of $1 per litre gasoline and people in Alberta, Saskatchewan and Newfoundland shiver at the prospect of crude in the US$60 range, this is a good moment to stop and look at where oil prices are going – and who the winners and losers will be.
The clear winners are world's four largest economies: the U.S., China, Europe and Japan. All are net energy importers, so the steady drop in crude prices feels like a big tax break, putting money directly into people's pockets. Americans are seeing the price of gas fall dramatically, even as their dollar has remained strong. It's a good time to be a U.S. consumer.
Canadian consumers will benefit, too, through lower gas prices. But because Canada is a net energy exporter, our loonie is in free fall. That's a bummer for anyone planning a winter escape to Florida. But there's a plus side: A lower loonie means our exports are becoming cheaper. Canadian businesses may see less demand from the oil-producing provinces, but more from the giant market next door. Ontario manufacturers could see economic benefits.
A potential loser is our climate. The best way to lower carbon emissions is to artificially raise the price of carbon-based fuels, like oil, through a carbon tax. Higher prices put a damper on demand; what's happening right now is the opposite. All things being equal, low oil prices promote oil consumption, which in turn could result in higher greenhouse gas emissions.
The biggest losers, though, are oil-exporting countries. Vladimir Putin's Russia is taking a far worse beating from oil prices than from sanctions. Iran, Iraq and Saudi Arabia have seen a huge drop in revenues. In Canada, the lower prices are a net negative. Ottawa has already reduced its revenue estimates by $2.5-billion per year for the next four years. Alberta has made drastic adjustments in its forecasts, too.
The most serious problem facing Canada will be a drop in investment in future oil production. The growth of the oil sands and offshore oil in Newfoundland powered our economy out of the recession, creating jobs and putting money in consumers' pockets. Even at today's lower crude prices, most existing producers will continue to make money, but Canadian economic growth could suffer if investment in new production facilities is held off until prices rise.
Which they will. It's (almost) inevitable. Lower prices will discourage exploration and production, demand will stabilize and supply will tighten. The commodity price pendulum, swinging one way now, will swing back. It may take weeks or years; in the meantime, there is little anyone can do. Ottawa might toy with ways of keeping new investment in the oil sands alive – tax breaks? guaranteed loans? – but it shouldn't. The wisest move is to ride this out, learn to lessen our dependency on oil, and smile when we fill up the car.