It's hard to believe such a small group of people in a faraway land can deliver such a huge financial blow to so many Canadians.
The small group is the Organization of Petroleum Exporting Countries, known to most of us as OPEC. The financial fallout began when the oil producing cartel decided to open the taps and flood the world with oil in the spring of 2014. The market was already oversupplied just as global demand was waning. Too much supply and not enough demand sliced the price of crude in half to below $45 (U.S.) a barrel today. And the flood continues.
"It's an oil price war," says David Madani, an economist with Capital Economics. "OPEC is trying to improve its market share. It's trying to put the competition out of business, or at least curb their growth."
That competition includes Canada. Oil is the country's largest export and economic lifeblood. But it's not a fair competition. OPEC can weather low oil prices because it is a low-cost producer. Mr. Madani says existing Canadian operations can produce oil for $15 to $20 a barrel, but costs are much higher when starting up new operations.
"Canada is one of the higher cost producers, so in the oil sands the long-run break-even cost is about $60 to $80 a barrel," he says.
While motorists may be enjoying lower gasoline prices at the pump, he says low oil prices have Canadian producers scaling back, cutting jobs in the oil patch and shelving plans for expansion.
Mr. Madani says it is having a spillover effect. "It's not just about what is happening in the oil and gas sector. It's also what's happening in sectors that are directly or indirectly tied to the oil and gas sector," he says. "The construction sector, as an example, will get hit by the downturn."
It is also having a ripple effect across the country. "Provinces like British Columbia, Saskatchewan and Ontario trade a lot with Alberta. When Alberta goes into recession it's going to affect interprovincial trade."
Even Canada's stalwart banks are being squeezed. "The banks have been talking about cost cuts because the economy is slowing down, so it's definitely affecting their business," he says.
Oil's decline is being reflected in a lower Canadian dollar, which should give a boost to Canadian manufacturers who export to the country's largest trading partner, the United States, but Mr. Madani says a low loonie isn't enough.
"What's really needed to kick-start the non-energy exports is a stronger U.S. economy. We are seeing some improvements, but it's been improving for the last two or three years and we don't have a great deal to show for that," he says.
Capital Economics expects crude oil prices to eventually drift higher over a long period of time. "We will continue to see the fallout from the oil and gas sector act as a drag on the economy, probably for the next couple of years," says Mr. Madani, who has lowered his economic growth outlook for Canada to a paltry 1 per cent each year for 2015 and 2016.
Even the Canadian housing boom, which many Canadians rely on for retirement, is under pressure. "At some point we're expecting a downturn in residential construction."
The OPEC glut is a double whammy for investors who hold their retirement savings in Canadian equities. One-third of all TSX-listed companies are resource related, and another third are financial with heavy exposure to the resource sector.
Many of the biggest companies in the banking and energy sectors are staples in the retirement portfolios of average Canadians – directly, through mutual funds or in pension plans.
Colin Cieszynski, chief market strategist at CMC Markets, says many Canadian investors don't realize how vulnerable they are to the commodities market.
"They're not as diversified as they think because the whole economy is interrelated. If the resource sector goes down it will – to a certain extent – take other sectors down with it."
Since mid-April of this year the group of energy stocks that trade on the TSX composite index is down 23 per cent. Over the same period the entire TSX composite index has lost more than 10 per cent of its value. In comparison, the more diversified S&P 500 in the United States is down 2 per cent.
Mr. Cieszynski says smaller profit margins for the big energy companies have a way of squeezing margins in other sectors. Even real estate investment trusts are vulnerable, he says.
"If you own a REIT with a huge amount of properties in the Calgary market, maybe you're more exposed than you think," he says. "In this country it would be pretty hard to find something that is completely insulated from the impact of resource price swings on the economy."
Options are limited for Canadian investors. The low Canadian dollar is making it expensive to invest outside the country and Mr. Cieszynski says domestic sectors with less exposure to oil, such as telecom and retail, are trading at high valuations.
His advice to investors caught in the commodity trap is to sit tight.
"I think by now if you're going to try to get away from resources it's probably a little bit late," he says. "We're probably not going back to $80 or $100 oil for five years."