Oil at US$100 - What does this mean for Canada?

[August1991]

Oil hit $100 US a barrel for the first time and gold prices broke a 28-year-old record on Wednesday as the bull run in commodities got new wind.

Data from the New York Mercantile Exchange indicated the price of the February contract for light, sweet crude oil hit $100 US shortly after noon ET. The price slipped to $99.62 US by the close of trading, up $3.64 US.

CBC

Oil prices, in real terms, reached US $95 or so in 1980 (in 2007 dollar terms).

This created huge stresses in Canada and the federal government responded with the National Energy Policy. I don't think a Conservative government will adopt a similar approach but the Liberals and NDP will have to respond to these changes.

In Quebec, there will be additional pressure to raise electricity prices. When the oil price goes up, all energy prices rise. The implicit subsidy of Hydro-Quebec's lower electricity prices become more costly. Every kwh sold cheap in Quebec is a kwh that could have been sold dear to an American. It's like Jose Theodore flipping burgers at McDo rather than playing in the Bell Centre.

High oil prices? For Alberta, it's hard not to see boom & bust. High prices mean people start to change their behaviour. This boom will last for several years, but it won't last forever.

Edited January 3, 2008 by August1991

[jdobbin]

Oil prices rises, in real terms, reached current US $95 or so in 1980.

This created huge stresses in Canada and the federal government responded with the National Energy Policy. I don't think a Conservative government will adopt a similar approach but the Liberals and NDP will have to respond to these changes.

In Quebec, there will be additional pressure to raise electricity prices. When the oil price goes up, all energy prices rise. The implicit subsidy of Hydro-Quebec's lower electricity prices become more costly. Every kwh sold cheap in Quebec is a kwh that could have been sold dear to an American. It's like Jose Theodore flipping burgers at McDo rather than playing in the Bell Centre.

High oil prices? For Alberta, it's hard not to see boom & bust. High prices mean people start to change their behaviour. This boom will last for several years, but it won't last forever.

For Alberta, it will probably be one more incentive to build their first nuclear reactor. It will make them a greener province in terms of emissions and be able to supply their energy needs instead of other fuel sources.

The fear of the 1970s returns for many regions of the country. Stagflation is a real concern this year for the North American economy.

[blueblood]

CBC

Oil prices rises, in real terms, reached current US $95 or so in 1980.

This created huge stresses in Canada and the federal government responded with the National Energy Policy. I don't think a Conservative government will adopt a similar approach but the Liberals and NDP will have to respond to these changes.

In Quebec, there will be additional pressure to raise electricity prices. When the oil price goes up, all energy prices rise. The implicit subsidy of Hydro-Quebec's lower electricity prices become more costly. Every kwh sold cheap in Quebec is a kwh that could have been sold dear to an American. It's like Jose Theodore flipping burgers at McDo rather than playing in the Bell Centre.

High oil prices? For Alberta, it's hard not to see boom & bust. High prices mean people start to change their behaviour. This boom will last for several years, but it won't last forever.

Time to start popping up more dams. Start R&D'ing into cellulosic ethanol, it's Quebec's beleagured logging industry's only chance at getting out of it's current mess.

Other than that, with Canada expecting to make a fortune in our commodity based economy, we need to diversify our economy. With finite commodities being our main money maker, that is a recipe for disaster in the long term.

[August1991]

Time to start popping up more dams. Start R&D'ing into cellulosic ethanol, it's Quebec's beleagured logging industry's only chance at getting out of it's current mess.

There are no large dams to build anymore (except maybe in Labrador and the far North) but there are alot of micro projects available. For the small projects, we'd have to see the hydros lose their monopoly.

Other than that, with Canada expecting to make a fortune in our commodity based economy, we need to diversify our economy. With finite commodities being our main money maker, that is a recipe for disaster in the long term.

Uh, you mean that the State should officially diversify our economy? It seems odd to appeal to a single entity in pursuit of a principle to rely on more than one entity.

It should be individual Canadians who decide whether and how much to diversify their economic choices. IMO, most Canadians are as diversified in their economic affairs as most North Americans. That is, most Canadians are among the most diversified in the world.

For Alberta, it will probably be one more incentive to build their first nuclear reactor. It will make them a greener province in terms of emissions and be able to supply their energy needs instead of other fuel sources.

The fear of the 1970s returns for many regions of the country. Stagflation is a real concern this year for the North American economy.

I agree, Dobbin, that both are possibilities.

The economic logic of a Candu project in Fort McMurray is overwhelming now. This is a no-brainer.

As to stagflation, it's a distinct possibility. When people spend more on gasoline, they have less to spend on other stuff until they get a smaller engine vehicle or move to a different home. The situation won't be as severe as in the 1970s. First, the labour market is different now. Second, people can cope faster with energy changes now. (Despite what Leftists think, the 1980s -not the 1960s- was the decade of change. In the 1960s, governments spent money and kids were teenagers which are the easiest things to do. In the 1980s, people faced reality and changed.)

----

I'm still curious how a high world oil price will provoke stresses in Canada and for the federal government. I suspect that Trudeau left a legacy in which the federal government benefits from this accident largesse of a natural resource. Harper will enjoy a surplus budget once again.

I think a high oil price means we'll have a majority Tory government.

Edited January 3, 2008 by August1991

[blueblood]

There are no large dams to build anymore (except maybe in Labrador and the far North) but there are alot of micro projects available. For the small projects, we'd have to see the hydros lose their monopoly.

Uh, you mean that the State should officially diversify our economy? It seems odd to appeal to a single entity in pursuit of a principle to rely on more than one entity.

It should be individual Canadians who decide whether and how much to diversify their economic choices. IMO, most Canadians are as diversified in their economic affairs as most North Americans. That is, most Canadians are among the most diversified in the world.

I agree, Dobbin, that both are possibilities.

The economic logic of a Candu project in Fort McMurray is overwhelming now. This is a no-brainer.

As to stagflation, it's a distinct possibility. When people spend more on gasoline, they have less to spend on other stuff until they get a smaller engine vehicle or move to a different home. The situation won't be as severe as in the 1970s. First, the labour market is different now. Second, people can cope faster with energy changes now. (Despite what Leftists think, the 1980s -not the 1960s- was the decade of change. In the 1960s, governments spent money and kids were teenagers which are the easiest things to do. In the 1980s, people faced reality and changed.)

----

I'm still curious how a high world oil price will provoke stresses in Canada and for the federal government. I suspect that Trudeau left a legacy in which the federal government benefits from this accident largesse of a natural resource. Harper will enjoy a surplus budget once again.

I think a high oil price means we'll have a majority Tory government.

I wasn't referring to just the State, I was referring to everyone in the country, don't worry if I want to refer to just the state, I'd use for example "the government..."

I'm worried about the economy as a whole being so tied up in the success of oil. The people of Ireland have no oil and do better than us (hate to use Wiki, but check it out, there's some truth there). Figuratively speaking, I'd like to see oil as the icing on an economic cake, not the cake itself.

I'm no Quebecer, but I think that Harper has to get his message across somehow to Quebecers who don't produce oil and are consumers that high oil prices are a good thing for our economy, but that would be hard explaining to people who pay steeply at the pump but don't see the money staying. It would appear that most quebecers are too focused on quebec and not seeing the bigger economic picture of the country. The socialist paradise Quebec that the PQ has propped up is a headache. If Harper can make the BQ and PQ look like the fools they are, he'll have his majority, but with the PQ and BQ brainwashing Quebecers with the "high oil prices is bad for the Quebec economy" Harper has a hard sell.

[jdobbin]

I agree, Dobbin, that both are possibilities.

The economic logic of a Candu project in Fort McMurray is overwhelming now. This is a no-brainer.

As to stagflation, it's a distinct possibility. When people spend more on gasoline, they have less to spend on other stuff until they get a smaller engine vehicle or move to a different home.

What to do with all those oversized homes in a high consumer debt and slowing economy? I think this is going to be a problem for people who do try to downsize. Ditto for Monster SUVs with extra large cupholders.

The situation won't be as severe as in the 1970s. First, the labour market is different now. Second, people can cope faster with energy changes now. (Despite what Leftists think, the 1980s -not the 1960s- was the decade of change. In the 1960s, governments spent money and kids were teenagers which are the easiest things to do. In the 1980s, people faced reality and changed.)

What the rightist don't think about is how overbuilt, overpriced and unsustainable things that gotten. The governments in both Canada and the U.S. have been spending money like drunken sailors. Harper's spending is up 25% since he took office.

What is worse is the consumer debt. It is the thing that is keeping the economy clicking along. Can people cope that fast to high energy when they are driving cars and living in houses that no one will buy when they wish to downsize to save money?

[sharkman]

I'm still curious how a high world oil price will provoke stresses in Canada and for the federal government. I suspect that Trudeau left a legacy in which the federal government benefits from this accident largesse of a natural resource. Harper will enjoy a surplus budget once again.

I think a high oil price means we'll have a majority Tory government.

Wow, that's quite a theory. Funny how oil could win it for Harper, but time will tell.

[Lazarus]

Leaving aside both the high cost of crude and the various environmental issues associated with it, oil a far too valuable and limited resource for us to continue burning out of our exhaust pipes. While the bulk of refined crude goes for fuels such as gasoline, diesel and kerosene (jet fuel), it has other uses that our society and civilization needs. Much of the textiles, plastics, pesticides, chemicals, pharmaceuticals and even foodstuffs we use daily are derived from crude oil. As the price of crude goes up, so does the cost of the goods made from crude derived materials.

It would be in our own economic best interest to find and use an alternative fuel source for our transportation needs.

[geoffrey]

For the small projects, we'd have to see the hydros lose their monopoly.

We did it in Alberta. No real reason why Quebec can't.

The economic logic of a Candu project in Fort McMurray is overwhelming now. This is a no-brainer.

The fact that private interests want to do just that is proof that the market can deal with electricity and resources and even make environmentally reasonable chocies.

In the 1960s, governments spent money and kids were teenagers which are the easiest things to do. In the 1980s, people faced reality and changed.)

I wasn't here in the '60s and don't remember the '80s so could you explain yourself a bit better? Teenagers only existed in the 60's? Government's only spent in the 60's? Huh?

I'm still curious how a high world oil price will provoke stresses in Canada and for the federal government. I suspect that Trudeau left a legacy in which the federal government benefits from this accident largesse of a natural resource. Harper will enjoy a surplus budget once again.

I firmly believe the best way to deal with this is to slash taxes and allow people to start their own businesses. All of this extra cash, especially out here, is spawning off many subsiduary and secondary industries to oil and gas. Calgary's tech sector is growing, and maybe it can sustain itself as a backup to o&g eventually. Time will tell.

The worst way of dealing with this would be the price controls and money transfers from efficent areas to less efficent areas that we saw with the NEP. Not to mention the oil producing provinces (Alberta, Saskatchewan and Newfoundland) all know better... they all know the Federal government can't actually do anything about oil.

How much is Ottawa willing to lose Alberta or Newfoundland?

I think a high oil price means we'll have a majority Tory government.

I think your right, for now. We'll have to see how job numbers look over the next 1/2 year or so.

[Michael Bluth]

The worst way of dealing with this would be the price controls and money transfers from efficent areas to less efficent areas that we saw with the NEP. Not to mention the oil producing provinces (Alberta, Saskatchewan and Newfoundland) all know better... they all know the Federal government can't actually do anything about oil.

How much is Ottawa willing to lose Alberta or Newfoundland?

I think your right, for now. We'll have to see how job numbers look over the next 1/2 year or so.

The development of oil projects in Newfoundland has been a boon to the country overall.

Neither the Liberals nor the Conservatives can completely write off these three provinces and hope to win an election. As a result we will not see another NEP or anything close to it.

[BubberMiley]

There are no large dams to build anymore (except maybe in Labrador and the far North)

Ever heard of Conawapa?

[Brunopolis]

As much as I want Canada to start weaning off their dependance of oil and move over to nuclear I believe the NIMBY and environmentalist crowd will prevent any future nuclear power plants from being built. The populace is still too scared of nuclear power thanks to chernobyl and the three mile island. I hope this changes soon but not for the foreseable future, unfortunately.