Are Canadians feeling any relief?
Downturn in oil industry leaves many questions to be answered
Even in Fort McMurray — the crude-pumping heart of Canada’s oil economy — relief at the gas station doesn’t come easy.
“The thing about Fort McMurray is the cost of living is higher, so gas stations have to charge more because of their overhead costs,” says Steve Kelly, a heavy-equipment operator with Suncor.
It’s just in the past week that gas prices have dropped under a dollar per litre in the northern Alberta city, finally bringing at least a little relief to household budgets enjoyed by the rest of the country — an average price of 92.8 cents per litre across the country, a drop of just more than 30 cents from a year ago.
Elsewhere, Tom Crocker can only watch with envy as drivers fuel up with the lowest gas prices in Canada in a decade.
The trucking company owner has a Newfoundland-based fleet of a dozen rigs that — like almost the entire industry — run on diesel. And while the cost of diesel has come down somewhat in recent weeks, it hasn’t matched the fall of gas prices.
“Our trucks run on diesel, so we’re not really seeing that much of a change,” he said.
Even worse, the cratering price of oil has companies thinking twice about investing in costly projects.
Canada’s Suncor, France’s Total and Norway’s Statoil have all recently halted projects in the oilsands, as the expense of unconventional mining means oil currently hovering around $50 a barrel isn’t worth it.
That’s bad news for Crocker — and the myriad of companies and employees that pay the bills, directly and indirectly — from Canadian oil.
Much of Crocker Transport’s business comes from shipping freight to and from Bull Arm, the largest industrial fabrication site in Atlantic Canada, as well as other oil-related business and job sites, meaning an oil slowdown has him nervous.
“I’m worried about less projects being started,” he said, pointing to Husky Energy’s announcement in December that it would defer an investment decision on its offshore West White Rose oilfield extension project for a year.
“That probably would have had positively affected business. And now, with that cancelled — or whatever — it’s probably going to have a negative effect.”
Naturally, Canada’s most directly oildependent provinces — Alberta, Saskatchewan, and Newfoundland and Labrador — are going to feel the biggest pinch, says Avery Shenfeld, CIBC World Market’s chief economist, while provinces whose fortunes are less tied to price fluctuations, will enjoy a little extra purchasing power, since Canadians spend more on transportation than on any other expense other than shelter.
More broadly, exporting provinces like Ontario may see a benefit to a weakening Canadian dollar. But it may be too optimistic to hope that extra money in your pocket will boost the Canadian economy enough to make up for falling oil revenue, says Laurentian University economics professor Louis-Philippe Rochon.
“Most economists believe this is going to give a boost to the economy. I just don’t see that,” said Rochon, who said the average Canadian will save $15-$17 a week in gas costs.
“Fifteen dollars is better than nothing, but I just don’t think that’s enough. I think most people are going to spend that on very casual consumptions.”
The short-term gain may be distracting people from considering the broader effects of cheap oil, he said. After all, a cheaper fill-up won’t be enough to make it up to someone who’s lost a job — and Rochon predicts layoffs — because of a slowdown.
Shenfeld said Canadians don’t need to live in the country’s main oil-producing provinces to feel a squeeze.
“There are people whose incomes are tied to the oil industry, the services industry that surrounds the oil industry, or are tied to government spending that has been financed in no small measure by revenues from the oil industry,” said Shenfeld.
“So for those consumers, the concerns about their income growth, about the stability of their incomes, could easily outweigh the benefits of cheaper gasoline prices.”
While Crocker and others like him wonder about how long it will be before oil rebounds enough, economists are offering their best guesses — with “guess” being the operative word, says Shenfeld, who figures an average $80 a barrel will be needed to generate the capital spending needed to meet growing world demand for oil between now and the end of the decade.
“If we get production declines in the first half of the year that are significant, and a pickup in the global economy, you might start a substantial recovery in the latter half of 2015,” he said, attributing the declining prices to a boom in production coupled with lower than expected demand.
“But it’s not inconceivable that we don’t see a recovery until very late this year, in which case the average price of oil will be a lot lower.”
Back in Fort McMurray, Kelly — also the president of the Wood Buffalo and District Labour Council — says oilsands workers are expecting some short-term pain as companies wait to see the price of oil recover.
But the city has seen economic downturns before, he points out, and people there know things will turn around.
“It’s just a question of when,” he said. Until then, he added, McMurrayites will ride it out.
There’s a reason, he said, that Fort McMurray’s United Way campaign has raised the most money per capita of any branch in Canada for eight years running.
“We band together.”
Canadian drivers are topping their tanks with the cheapest gas in decades … and loving it. But the low prices aren't popular with everyone, as the impact of the dropping price of oil sideswipes the economy and the bottom line for many businesses.