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Canada and declining oil prices

Hydrocarbon Engineering,

According to The Conference Board of Canada’s ‘Canadian Outlook-Winter 2015’, Canada’s economy is expected to grow by just 1.9% this year as the collapse in oil prices takes its toll on business investment and corporate profits. This rate of growth represents a substantial downgrade from the Conference Board’s previous Canadian Outlook of 2.4% which was released in November last year. Business investment will be the weakest part of the Canadian economy this year. Real business investment on energy structures and exploration is forecast to drop by 23% this year also.

Report highlights

Oil prices appear to be bottoming out at approximately US$50/bbl. However, the Conference Board expects that prices will recover to above US$60 /bbl by the end of 2015, this still represents a 40% decline in crude oil prices this year from last. Producers are expected to export an average of 3 million bpd this year, an increase from 2.8 million bpd last year despite the collapse in oil prices, and the drop in prices will cost them more than US$40 billion in lost revenues.

Many firms in the oil patch have already announced steep cuts to their capital budgets, and significant layoffs are expected in both the oil industry and among businesses involved in its supply chain. The pain will be particularly severe in Alberta and Newfoundland and Labrador, and to a lesser degree, in Saskatchewan.

With the US economy gaining momentum and a weakening Canadian dollar, Canada’s trade sector, concentrated in Ontario and Quebec, will be a bright spot in the outlook. In addition, the drop in oil prices should boost consumer spending because of lower gas prices, which should save the average household almost US$1000 this year. Despite tax cuts and lower gasoline prices, consumer spending growth is expected to slow. As a result of the general sluggishness of the economy, interest rates are expected to remain at current levels until 2016.

Edited from press release by Claira Lloyd

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