The Collapse of the Oil Prices along with Alberta’s Economic Confidence

The most important worldwide issue sweeping recent economic articles is certainly the plummeting oil prices. Back in June 2014, the price of oil was at 115$ per barrel. By January 13th 2015, the price had settled comfortably at under 50$ per barrel. For some nations, the falling oil prices offer major advantages. The United States, China and Japan are the largest importers of oil and they will certainly benefit from the lowest oil prices seen in years, which will bring the price of heating bills down for the winter, and most importantly it will lower the price to fill up the car tank.

However, the nations who produce and export oil will not be considered winners, but rather losers. We have recently been hearing about major oil exporters like Saudi Arabia and Russia who are struggling due to the price fall. However, right at home, more specifically in the remote corner of Alberta, the collapse of the oil price is slowing down the economy of the province and even of the country.

An often-controversial topic across the country, the Athabasca oil sands consist of large amounts of crude bitumen situated in northern Alberta. Canada is more dependent on the oil from this area than ever before. As of 2012, the oil production from these sands was 1.8 million barrels per day. One in sixteen jobs in Alberta are directly related to the energy production from these tar sands.

The gaping drop in the oil price will decrease profit margins for oil companies and push producers to defer investment on certain new projects, which are among the most expensive to develop in the industry. The Conference Board of Canada reported that the ongoing plummet of oil will not only slowdown Alberta’s economic growth, but it could even push the province into a recession. Other financial experts are deeming the ongoing economic state of the province “troublesome” and the U.S. financial giant, JP Morgan Chase & Co. state “There will be blood”.

In the midst of what many are calling a “financial crisis”, oil companies are making large cut backs and are starting to lay off workers. The province is struggling on the unemployment front as the rate is estimated to rise from 4.5% to 6%.

While the oil sector is clearly in trouble, other economic sectors are also being affected as the first signs of the economic slowdown are starting to roll in. Alberta’s Small Business Confidence Level Index is at an all time low as business owners begin to lose confidence in their economic standing. Additionally, the housing market in Calgary is weakening very rapidly as home sales are falling even as more people are deciding to sell their homes.

Ottawa seems to be reluctant to help at the time despite the devastation of the price collapse for Alberta. In fact, many government representatives are trying to take a distance from the subject and focus on other issues. In a speech on January 15th, the federal finance minister, Joe Oliver said “Lower oil prices will adversely impact our federal government’s fiscal situation, but the decline in oil prices will not prevent our government from achieving the budgetary balance in 2015/16,” On January 30th, the Prince Edward Island Premier Robert Ghiz said “We still need to look long-term. Yes, there is a drop in oil prices today. Is that drop going to stay on forever? Most likely not, so do not slow down in terms of the opportunities that exist to export our (resources) to get the best possible value for it.”

The oil crash is bringing back talks of economic diversification in an effort to lower Alberta’s reliance on the oil market. The Alberta government might want to consider the idea of resembling to Ontario’s relatively diverse economy with no industry that dominates to avoid future economic downturns caused by dependency.

By,

Melissa Anber

 

Citations:

http://www.economist.com/news/international/21627642-america-and-its-friends-benefit-falling-oil-prices-its-most-strident-critics

http://www.cbc.ca/news/business/jim-prentice-slams-conference-board-report-on-possible-alberta-recession-1.2899167

http://www.edmontonsun.com/2015/01/12/economists-predicting-layoffs-in-albertas-oilsands-as-oil-prices-plunge

http://www.edmontonsun.com/2015/01/12/economists-predicting-layoffs-in-albertas-oilsands-as-oil-prices-plunge

http://www.energy.alberta.ca/oilsands/791.asp