A New Era in Oil Pricing Will Impact Economy

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The falling price of a barrel of oil will impact producers, governments and consumers
The falling price of a barrel of oil will impact producers, governments and consumers

The falling price of a barrel of oil will impact producers, governments and consumers
The falling price of a barrel of oil will impact producers, governments and consumers

THUNDER BAY – A litre of gasoline in Grande Marais is running at $0.81. In Thunder Bay that same litre of gasoline will run from $1.04 to $1.21. That is one of the first impacts for consumers in the falling price of oil. Gasoline prices are in a state of flux.

 

The price of a barrel of oil has dropped by 30 percent since July. The price of gasoline has fallen slightly since July. The contrast in price from Canada to the United States is impacted as well by the difference in the value of the Canadian dollar relative to the US dollar.

It has been described as a new era in oil pricing

Ontario will be a net benefactor from the falling price of a barrel of oil. As a net oil importing province, lower prices should assist manufacturers in the province.

The 2014 Ontario budget reported that for every $10 drop in the price of a barrel of crude oil will allow a 0.1 to 0.3 per cent increase in economic growth for the Ontario economy.

Each barrel of oil produces gasoline, diesel fuel, jet fuel, and other commodities
Each barrel of oil produces gasoline, diesel fuel, jet fuel, and other commodities

However if the price drops to a level that impacts exploration or hits the Alberta and Saskatchewan economies, the impact on manufacturing will be reduced demand for the products Ontario produces that are purchased in producer provinces.

The falling price of oil is going to impact the economy in Canada, and in Alberta. The federal and provincial governments have put petroleum exports and the revenues from the sale of those resources.

Oil prices have continued to plunge. On Friday a barrel of Texas Intermediate crude settled at $66.15. That represented a drop in a single day of ten per cent.

Volatility in the market is normal. In July the price of oil was over $100 per barrel.

The impact on gasoline prices is usually on a ninety-day cycle as there is usually a three-month supply of gasoline in the supply network.

Most oil producing countries, except for major producers like Saudi Arabia require a price of at least $80US per barrel to maintain their economic programs. Saudi Arabia has the fiscal reserves to wait out the market fluctuations.

What does this mean for Canada?

Likely the bigger issue for Canada is a falling oil price is going to impact the economy as producers of petroleum are likely to cut back their exploration efforts in the short run.

The short run will be an impact on the economy. The longer run on this price trend for oil could impact the plans for the Keystone XL Pipeline and the Enbridge Northern Gateway pipeline.

One of the major world powers that will benefit from lower oil prices is China. The lower price for oil could spur major growth in China.

Only time will tell what the long-term economic and political ramifications of the falling benchmark prices for a barrel of oil will be.