Consumers across Canada are enjoying lower gas prices, with the price of crude dropping to its lowest level in over four years, but is this a good thing for the long-term outlook of the economy?
The reason why gas prices have dropped is due to the oversupply of crude oil which is driving oil prices down and it is expected to last a while, particularly as OPEC members recently decided not to cut oil production.
However, despite consumers being tickled pink with the fact that filling up the tank costs less than before, it is not necessarily good news for the Canadian government, as its budgets depend on oil revenue.
As soon as the OPEC made its decision Canadian oil companies were hit hard. The Toronto Stock Exchange’s energy index fell by nearly 7% on Thursday, and dropped by 2% on Friday.
In Edmonton the price for a litre of gas is around 96 cents, with some stations across Calgary also posting prices bellow a dollar per litre. In Montreal a litre costs approximately $1.24 and in Vancouver the average is about $1.21.
Roger McKnight, with En-Pro International in Oshawa, Ontario, told the Financial Post:
“I just don’t know how much longer the oil companies can handle that because I think the refining margins must be getting rather narrow,”
Adding:
“If they start hurting in the upstream with this crude oil price war going on, they’re going to compensate for that by not passing on as much reductions on the downstream, so the consumer won’t see as much happening that way.”
Regarding the OPEC decision to not cut oil production, McKnight said the following:
“I think OPEC is going to have an emergency meeting within three months because nine of the 12 members of OPEC need US$100 a barrel to balance their budgets and provide social services for their people. So I can’t see this going on much longer.”