US $20 per barrel in 2016: Three Points

[Wilber]

Patent nonsense. Aside from the effect that fossil fuels have on the climate (which I should remind you we all share) the high Canadian dollar, caused by the gold-rush mentality in the tar sands and elsewhere in the commodities sector, has hollowed out other portions of the Canadian economy and resulted in the economic downturn we find ourselves in now.

So we finally got a lower dollar and are poorer as a result. You should be happy.

[msj]

So we finally got a lower dollar and are poorer as a result. You should be happy.

But not everyone is poorer is a result.

The tourism industry in BC had a stellar year thanks to the low dollar.

I know lots of people on the Island who are happy that tourism is back.

That's the thing with markets and prices - its not like it is a zero sum game.

Some people gain, others lose, we all adjust.

[ReeferMadness]

So we finally got a lower dollar and are poorer as a result. You should be happy.

You still haven't answered my question. Obviously, you think it was a good idea to build a commodity-dependent economy, despite the historical fact that commodity prices are volatile. Today's low dollar is inextricably linked to our dependence on commodities. Now you are complaining about the low dollar. How can you be accepting of a commodity based economy (and by extension a commodity based dollar) and then complain about currency devaluation?

[Smoke]

I remember when gas prices started shooting higher and the price of everything else increased because of it (ie. food, goods, etc.). So I guess now that gas is cheaper, we should see the cost of everything start to go down right? (Haha, I'm being sarcastic)

[TimG]

I'm OK with the fact that our gold-rush development of the tar sands is causing the dollar to go up and hurt manufacturing in eastern Canada".

Please provide evidence that the volatility of the dollar against the USD is worse than other countries with non-resource economies. Japan is a good example:

https://ca.finance.yahoo.com/q/bc?t=5y&s=USDJPY%3DX&l=on&z=l&q=l&c=USDCAD%3DX&ql=1

Note that the changes in the Yen are almost identical to the changes in the Canadian dollar.

Your 'resources cause the dollar to swing' meme is nonsense. Any sector that generates exports has the potential to cause the dollar to swing. So if we were like Japan and only exported manufactured goods we would see the dollar swing around in response to changes in demand for those goods. In the case of Japan their manufacturing sector was so good that it caused the yen to rise on its own and thereby undermined its own competitiveness.

IOW, there is no escape from currency volatility for a small economy. However, Canada is fortunate that it does have a two engine economy with manufacturing in the center and resources on the edges. Both sectors are important and both sectors could be killed off by governments that don't put growing the economy first. That is currently happening in Ontario and Alberta which means trouble for the future of Canada.

Edited January 18, 2016 by TimG

[GostHacked]

A flat economy or recession is not good for airlines even if fuel is cheap. In recessions they are one of the first industries to get hit and one of the last to recover.

Are the airlines cutting prices to entice people to fly? Does not look like it. They must be saving a lot of money with these low fuel prices.

[Big Guy]

On the news to-day: "it was reported that it is now cheaper to buy a barrel than a barrel of oil".

[ReeferMadness]

You have that backwards. The oil is cheaper than the barrel. By a lot.

[ReeferMadness]

Canadian bitumen is now down to $8.35 per barrel. And the price of North Dakota sour oil actually went below zero before settling on a price of $1.50.

[ReeferMadness]

Please provide evidence that the volatility of the dollar against the USD is worse than other countries with non-resource economies. Japan is a good example:

https://ca.finance.yahoo.com/q/bc?t=5y&s=USDJPY%3DX&l=on&z=l&q=l&c=USDCAD%3DX&ql=1

Note that the changes in the Yen are almost identical to the changes in the Canadian dollar.

Your 'resources cause the dollar to swing' meme is nonsense. Any sector that generates exports has the potential to cause the dollar to swing. So if we were like Japan and only exported manufactured goods we would see the dollar swing around in response to changes in demand for those goods. In the case of Japan their manufacturing sector was so good that it caused the yen to rise on its own and thereby undermined its own competitiveness.

IOW, there is no escape from currency volatility for a small economy. However, Canada is fortunate that it does have a two engine economy with manufacturing in the center and resources on the edges. Both sectors are important and both sectors could be killed off by governments that don't put growing the economy first. That is currently happening in Ontario and Alberta which means trouble for the future of Canada.

Wow thanks for that because it proves.....ummmm..... exactly nothing!

Japan's situation is very different from Canada's - they have a negative population growth and an economy that has been stable for the last few decades.

[TimG]

Japan's situation is very different from Canada's - they have a negative population growth and an economy that has been stable for the last few decades.

Sorry, I could have picked any number of countries that show the same thing so it does show that currency volatility is a fact of life - especially if a country has any kind of export surplus. So your pining about how wonderful it would be if we did not have that nasty resource sector generating all those exports is delusional. Without the resource sector we would either be heading to Greek status as the manufacturing industry is decimated by competitors that can do the same thing for less or the manufacturing industry would kill itself with its own success like it did in Japan. Personally, I think Greece is a more likely outcome given the mentality of politicians that are in power today.

The two cylinder economy we have is the best thing for Canada and both cylinders need to be protected if we want a prosperous future.

Edited January 19, 2016 by TimG

[Wilber]

But for immigration, Canada would also have negative population growth.

[Topaz]

Well, since oil prices is heading to the bottom of the barrel, so to speak, green energy is going to be spreading out West. Alberta and Saskatchewan is adding to the wind turbines in their provinces. Right now, Ontario and Quebec are the leaders of having wind turbines but that could change. The only jobs from this are the workers who put them up and the security guards needed to stop people from stealing the copper used. It will be interesting to see if the rate of 15,000-20,000 yearly lease changes out West. http://www.lfpress.com/2016/01/19/ontario-taking-a-back-seat-as-the-green-energy-industry-shifts-to-the-west

[TimG]

Well, since oil prices is heading to the bottom of the barrel, so to speak, green energy is going to be spreading out West.

WTF? Cheap oil means renewable toys make even less economic sense than they normally do.

Alberta and Saskatchewan is adding to the wind turbines in their provinces. Right now, Ontario and Quebec are the leaders of having wind turbines but that could change.

Wind turbines that cost rate payers dearly but produce a negligible amount of electricity. Edited January 20, 2016 by TimG

[Argus]

Regardless of any of that, there are more important issues than money.

Name one. Without money there's no welfare, no pensions, no pogey, no free houses for refugees, no health care...

[Wilber]

Topaz, if wind had trouble competing with $100 oil, how is it going to compete with $20 oil?

However, as my financial adviser said, the solution to low oil prices, is low oil prices.

Edited January 20, 2016 by Wilber

[cannuck]

Topaz, if wind had trouble competing with $100 oil, how is it going to compete with $20 oil?

However, as my financial adviser said, the solution to low oil prices, is low oil prices.

So true. What happened in North America was the the huge amount of press that the tree huggers gave to hydraulic fracturing meant that the oil industry caught Wall Street's eye, and ever flakey idiot investment banker and hedge fund threw BILLION$$ at the oil biz, that got the frac guys to be even more agressive, etc. Just so happened that the rest of the market had set the stage with $100 oil, that being the catalyst that got the interest of the investment community turn into an orgy of investment. Deals were being done that just made no economic sense - unless oil stayed goofy high. Sadly, the army of people who considered themselves business geniuses at $100 in a boom market found out in a hurry what has always happened with oil (and let's face it, almost any resource) price and it corrected after the glut of production filled market demand.

The price will come back somewhat, but there isn't anything yet to play out to make it happen. The US side, though, will do its part as the massive number of frac plays hit their early and very steep decline curve and there are simply not enough rigs working to replace that lost production. AND, once the banks lose their shirts from current investments, they will be shy of petro for quite a while.

Meanwhile, the smart money will do as it has always done and buy production when the crap really hits the fan (it has started already) - knowing of course that the solution for low oil prices is indeed low oil prices.

Edited January 20, 2016 by cannuck

[August1991]

Watch five years of US oil drilling:

Link

Looking at that graph/map, I reckon the world price is a max of $30-$40 per barrel for years to come.(Look what happens in Ohio/Pennsylvanian when the price drops below 40...)

Edited February 29, 2016 by August1991

[August1991]

Personally, I think it is great. I saved about $10 on my last fill up. I hear truckers are happy as are our airlines and other business that depend on oil for fuel.

From gasoline to Chinese imports, BG you've got it right (IMHO) and Trump has it wrong.

Sunlight is free. Should we refuse/block sunlight (negotiate a better deal with the Sun) because the Sun destroys jobs making light bulbs?

Edited February 29, 2016 by August1991

[bush_cheney2004]

....Looking at that graph/map, I reckon the world price is a max of $30-$40 per barrel for years to come.(Look what happens in Ohio/Pennsylvanian when the price drops below 40...)

That's the good part...most of my 2015 capital gains came from the volatile stocks producing in the Marcellus Basin region (eastern Ohio/western Pennsylvania). Who says you can't go home again.

[69cat]

I think the first casualty of low oil will be the middle east powder keg. Authoritarian control, money and military keep the religous factions in check. If KSA runs short of money then it looses control and civil unrest tears that country apart. Which in turn takes supply of oil down. Perhaps they can borrow money to sustain their present social structure built on oil but i suspect civil unrest will come before north american production drops enough to impact world supply/use ratio first.

The other unknown to me is how much oil companies have invested in Canadian oil. Reefer takes the position that over the years Alberta has given the oil away and that as soon as prices drop then all the development and production is abondoned. Perhaps this is true. Perhaps there has been actual investment to build the infrastructure when times are good and now that is in place those costs are removed and now it is only cost of production that needs to be addressed. As such production does not need to be abondoned as doomsayers say, only building and expanding the growth side is abadoned.

Regardless, oil can go lower yet and i do not see a significant uptick to beyond say $60/bbl unless there is a significant change on the supply side. This could likely come from the middle east and not north america or other countries. I think demand will continue to drop based on my beleif we are heading to a global recession and not global prosperity.

[msj]

I am trying to figure out how to short/profit on tanking oil in Canada, but it is not as straightforward as in the U.S. (to me).

You can always short Postmedia.

Looks like RBC has downgraded them to a share price of $0.

Don't see that too often.

Hmmm, Postmedia is down to 7 cents.

Shoulda, coulda, woulda .... Not too often a brokerage house downgrades but when they do they are usually right (very late, but right nevertheless).