Is a $100 Barrel of Oil Good for the Canada?
“In many respects it is. We know it’s a huge boon for the companies and people who rely on our vast energy industry to feed and house their families. But the question is – at what cost is it for the rest of the country when oil is expensive?”.
As a major global producer, Alberta clearly benefits from rising oil prices. Higher prices raise the value of its exports, increase profits, and improve the province’s bottom line, even if it means that Albertan’s too will pay more at the pumps. For a province struggling with five years of economic stagnation followed by the covid pandemic, this could not have come at a better time.
But is it also good for the rest of Canada?
At a high level, the impact of higher oil prices on the economy is pretty clear. Canada is a major global oil producer, and crude oil is our largest export product. Simply put, when oil prices rise, our economy grows. As with everything in economics, however, there’s more to it than that.
Oil price increases affect inflation and the global economy – but what is expected to happen to the Canadian economy?
Oil is 3% of global GDP. So, if 3% of global GDP is twice as expensive tomorrow, clearly, this will have some impact on inflation. However, it is not expected for oil prices to affect inflation too much but it is still important. Why? Because oil is basically in everything, so it’s not a volumetric impact, but it impacts the price of almost everything. An increased oil price will not only be seen at the gas station, but it will be felt in virtually all the goods and services we use.
Canada remains in an advantaged position as a top global energy producer and exporter and will not have to worry about energy shortages but we will have to deal with the rise in the cost of goods. Since energy makes up nearly 10% of our national GDP and more than a 1/5 of our total exports, the economic gains will help offset the negative effect of high oil prices on other parts of the economy. It is expected that the increase in oil prices could cause Canada’s GDP to change by just under 1% as the effects of reduced consumption are offset by increased energy revenues.
So, is a $100 barrel of oil good for all of Canada?
“As you blow past $100, that starts to heat things up, create a little bit of extra inflation and, at the same time, it can start to push down some of the demand. So it’s a balance.”, said Crescent Point Energy CEO Craig Bryksa.
The answer seems to be yes – even if it doesn’t seem like it when we feel the sticker shock at the pumps these days.
Vice President – Land