Oil Price Drop Has Economic Impact

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 – ENERGY – The global fallout over the falling price of oil is impacting many countries. Russia is one of the largest producers of oil in the world. Each $1US drop in the price of a barrel of crude oil costs the Russian economy almost $2billion is revenues. That is already hammering the Russian economy.

There is speculation that part of the pressure on oil prices is a geo-political move toward the Russian economy over Ukraine and other efforts that President Putin in Russia is behind.

In the United States, oil produced by fracking has added surplus supply to the market and that too is putting downward pressure on oil prices.

Oil prices have fallen by almost fifty per cent since the summer. The long term impact on the global economy is likely yet to be fully shown yet.

In Canada, as a major producer of crude oil, the impact on both federal and provincial governments is expected to be massive as well. The Canadian government will lose $2.5-billion in revenue if the oil price levels out around $70 next year. If the price is lower, the impact on the federal governments budget balancing plans could be made far more difficult.

Oil producing provinces could be hit harder still. Economists are forecasting a potential loss of $5-billion to $8-billion if the price of a barrel of oil stabilizes at the $70 price. It is also estimated that Alberta could face a $7-billion hit on its own.

RBC Financial says however the overall impact on Canada’s economy should be minimal. “The more than 40% drop in oil prices since mid-June is weighing on financial markets with the Toronto Stock Exchange having trimmed back 2014’s gain to about 2%. The Canadian dollar lost 5.5% against its US counterpart over the six-month period. The weakness boosted concerns about Canada’s economic outlook especially in regions that derive much of their livelihood from oil. Our analysis shows that the overall hit to eco- nomic growth, at a national level, will be muted with declining investment by energy companies largely offset by rising export demand, strengthening investment in indus- tries outside the energy sector, and higher consumer spending as gasoline costs fall. The decline in oil prices, if sustained, would reduce the headline inflation rate in 2015; how- ever, we expect the pass-through to the core measure, which excludes energy costs, to be limited”.

“We continue to steer a steady ship through stormy waters,” said CEO Asim Ghosh. “Our strong financial position and resilient portfolio are helping weatherproof our business against current market conditions.”

Production growth in 2015 will be back-weighted towards the end of the year, with volumes averaging 325,000 to 355,000 barrels of oil equivalent per day (boe/day). The forecast reflects natural production declines as well as several planned turnarounds that are expected to impact production by about 8,000 boe/day. It also takes into account rig availability at the South White Rose satellite extension, which is now expected to start up in mid-2015.

Approximately 40,000 barrels per day (bbls/day) in new production is expected to come onstream in the second half of 2015 from the Sunrise Energy Project, the Rush Lake thermal project, South White Rose and the Hibernia-formation well beneath the North Amethyst field.

By the end of 2016, about half of Husky’s total production will be from low sustaining capital cost projects. The Company continues to advance long-life, high quality return projects, including its suite of heavy oil thermal developments and Sunrise. Projects currently in development are expected to add about 85,000 net bbls/day by the end of 2016.

As the price of a barrel of oil goes, the exploration budgets of other companies will likely be cut as well. It has started, and the impact is going to be felt over a wide expanse of the global economy.


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