US $20 per barrel in 2016: Three Points

[ReeferMadness]

Dream on, everything you buy that wasn't produced in Canada costs more to import. Anything that Canada exports costs more because others can pay more for it than you. You don't live in a bubble.

I didn't say it didn't cost more but it's not as much more as you think.

First of all, the cost of Canadian labour and materials has not risen. Second, the Canadian dollar has dropped a lot vs the US dollar - it hasn't dropped by the same amount vs other international currencies. Finally, a lot of major companies (like car companies) don't automatically adjust the prices whenever the dollar falls. When our dollar rises, it's cheaper to buy cars in the states. When our dollar falls, it's cheaper to buy cars here. They don't adjust the prices at the same rate as the currency changes.

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

[Wilber]

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

Until you don't have any.

[August1991]

Dollar closed below 70 cents today, careful what you wish for. You are 25% poorer than you were this time last year.

The Cdn dollar may be below 70 cents, but I'm not 25% poorer.

Wilber, you describe popular perceptions - and I suspect many voters chose Trudeau Jnr as you suggest.

If, as you seem to do, the popular perception that the Cdn dollar exchange rate is a measure of competence, then Trudeau Jnr may have to go Travolta.

[bush_cheney2004]

The Cdn dollar may be below 70 cents, but I'm not 25% poorer.

Agreed...it is amazing how widespread that perception is. With few exceptions, goods and services produced in Canada are not priced in U.S. dollars or any other currency. The Canadian dollar is also not devalued as much compared to other currencies besides the USD. Canadians were already paying a premium for imported goods even when the loonie was higher or at parity.

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).

[msj]

Wilber, you describe popular perceptions - and I suspect many voters chose Trudeau Jnr as you suggest.

If, as you seem to do, the popular perception that the Cdn dollar exchange rate is a measure of competence, then Trudeau Jnr may have to go Travolta.

I find this type of opinion very odd.

Here we have Canada and the US pumping oil supply because it's difficult to turn off the taps (or, rather, to turn them back on once they are shut) while the world watches and prepares for the great Iran/Saudi supply show down.

But somehow this is Harper's fault and/or Trudeau's fault.

It's mind boggling.

Oil markets do not care who is PM of our little country. They don't care who is premier of little Alberta, for that matter.

Nor do currency markets.

I am reminded of people going on about how Obama was going to destroy the US economy etc back in 2009 (really, have these idiots ever stopped warning us about Obama?).

Yet, there they are still producing hundreds of thousands of jobs each month, while the Dow and S&P are still up even after the recent fall this past week or so.

The lesson?

Stop mixing politics with markets because markets just don't care about any of our ideological axe grinding bullsh!t.

Edited January 14, 2016 by msj

[TimG]

Stop mixing politics with markets because markets just don't care about any of our ideological axe grinding bullsh!t.

Well, governments do affect the future course of the economy but that effect is usually after the politicians in question have left office. For example, Harper benefited from the fiscal responsibility of the Chretien Liberals and Trudeau will be able to turn on the deficit taps because Harper at least attempted to balance the books. Whoever comes after Trudeau will likely have to deal with a fiscal mess worse than what Mulroney left Chretien.

[ReeferMadness]

Until you don't have any.

Been there. Damned close, anyway.

You're hung up on money but it has an intrinsic value of zero. If people suddenly believed the Canadian dollar was worth nothing, then it would be. That's how currencies fluctuate - it's as much psychology as anything.

Real things have intrinsic value that doesn't disappear because people stop believing in them. Money is an abstract notion that just stops existing as soon as people stop believing. It's like Santa Clause.

[ReeferMadness]

I find this type of opinion very odd.

Here we have Canada and the US pumping oil supply because it's difficult to turn off the taps (or, rather, to turn them back on once they are shut) while the world watches and prepares for the great Iran/Saudi supply show down.

But somehow this is Harper's fault and/or Trudeau's fault.

lmfao. The same people who made excuses for Harper because the price of oil was low are now blaming Trudeau and Notley because it's even lower.

[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.

[msj]

Well, governments do affect the future course of the economy but that effect is usually after the politicians in question have left office. For example, Harper benefited from the fiscal responsibility of the Chretien Liberals and Trudeau will be able to turn on the deficit taps because Harper at least attempted to balance the books. Whoever comes after Trudeau will likely have to deal with a fiscal mess worse than what Mulroney left Chretien.

This is odd giving how much debt Harper has accumulated.

Harper also has a spotty record with respect to the housing market/debt bubble in Canada which Trudeau may have the joy of dealing with.

And, unlike the oil markets, that is something that can be largely blamed on government.

[Wilber]

The Cdn dollar may be below 70 cents, but I'm not 25% poorer.

Wilber, you describe popular perceptions - and I suspect many voters chose Trudeau Jnr as you suggest.

If, as you seem to do, the popular perception that the Cdn dollar exchange rate is a measure of competence, then Trudeau Jnr may have to go Travolta.

Our below 70 cent dollar is not a perception and where did I say anything about choosing Trudeau or anyone else. msj is right.

[Shady]

If we could only get hydro rates down to the kind of low prices gasoline is now, the economy could really take off. Unfortunately, the environmentalists won't allow it. Fortunately, they can't do anything about oil prices.

[Wilber]

Been there. Damned close, anyway.

You're hung up on money but it has an intrinsic value of zero. If people suddenly believed the Canadian dollar was worth nothing, then it would be. That's how currencies fluctuate - it's as much psychology as anything.

Real things have intrinsic value that doesn't disappear because people stop believing in them. Money is an abstract notion that just stops existing as soon as people stop believing. It's like Santa Clause.

We are down between 15 and 20% against the Euro, Pound and Yen over the past year. The Chinese Yuan is pegged to the USD so we are down 25% compared to it as well. A low CAD may be good for some industries such as manufacturing, movies and tourism but not for the Canadian consumer because everything we buy from those countries will be more expensive for someone in Canada whether it is the business trying to sell or use them or the consumers trying to buy them. The value of a countries currency is a measure of that countries worth. If you think being poorer as a country is good, there are plenty of third world countries, that would disagree with you.

[ReeferMadness]

We are down between 15 and 20% against the Euro, Pound and Yen over the past year. The Chinese Yuan is pegged to the USD so we are down 25% compared to it as well. A low CAD may be good for some industries such as manufacturing, movies and tourism but not for the Canadian consumer because everything we buy from those countries will be more expensive for someone in Canada whether it is the business trying to sell or use them or the consumers trying to buy them. The value of a countries currency is a measure of that countries worth. If you think being poorer as a country is good, there are plenty of third world countries, that would disagree with you.

OK. Let's just say, for the moment, that the low Canadian dollar is a problem. Then what? Short of starting a war in the middle east, you're not going to push it back up to where it was. Peg the dollar to the US dollar? Reinstate the gold standard? Instate capital flight controls? All of these bring other problems (and don't get to the root of the issue).

I would posit that the real problem (to the extent that there IS a problem) isn't the absolute level of the dollar, it's the speed at which the value changes. Canada's GDP isn't going to change that much so how did the dollar's value move so fast? And it's not done yet. If the dollar were a reflection of something stable (like GDP), it would change gradually and businesses would have time to react to changes.

The problem is markets. They're driven partly by information, partly by greed and partly by fear. So, when you have a petro-dollar you have to expect that your currency is going to correct and over-correct like a drunk on a bicycle. When the dollar was at par, economists and pundits were saying it should be at 80 cents. It should probably still be at 80 cents but it's headed for 60 cents.

You want a stable dollar? Instate controls on how fast the tar sands can be developed. Use oil profits to diversify the economy. Above all, don't base your economy on a single volatile commodity.

It's really not that complicated.

[Wilber]

A large part of our economy is resource based, that is just reality and it isn't going to change any time soon. Your money is worth less and commodity prices are a large part of it. Yes, part of it is perception and people like you venting about shutting those industries down doesn't help that perception. Canada can't survive and maintain a decent standard of living for its people by just selling to each other.

We aren't basing our economy on a single commodity but that commodity happens to be a large part of that economy. You make noises about diversifying our economy but how about some specifics, because whatever we do, it will be in competition with the rest of the world. As far as state controls on energy production is concerned, Trudeau Sr. tried with the NEP and it was a disaster.

[ReeferMadness]

A large part of our economy is resource based, that is just reality and it isn't going to change any time soon. We aren't basing our economy on a single commodity but that commodity happens to be a large part of that economy.

Fort McMoney didn't just happen. It's an entirely foreseeable consequence of a deliberate policy. The gold-rush mentality was caused by government that took an irresponsibly rosy view of things. It caused over-development and resulted in a massive give-away of wealth to big oil companies. Although a relatively small number of people made big money, the overall effect of the high dollar was detrimental to the country as a whole.

Your money is worth less

Watch me not care...

Yes, part of it is perception and people like you venting about shutting those industries down doesn't help that perception.

The fossil fuel industry will be shut down - it's just a matter of when. And Canada has utterly failed to capture most of the benefits of that industry.

You make noises about diversifying our economy but how about some specifics,

Sadly, the best advice would require a time machine. Unlike Canada, Norway treated their oil wealth like the short term gold mine that it is. They managed development and maximized the benefit to the state. As a result, they have the world's largest sovereign wealth fund. In contrast, Alberta treated the oil like an entitlement, they bragged about the "Alberta advantage" of low taxes and no sales tax and they kept royalties ridiculously low. As a result, they've missed the opportunity of a generation (several, actually).

Oil might have one last hurrah before fossil fuels are inevitably replaced by cleaner and cheaper alternatives. I almost guarantee there will not be governments smart and gutsy enough to take advantage of it if it comes.

As far as state controls on energy production is concerned, Trudeau Sr. tried with the NEP and it was a disaster.

First off, the NEP was not the disaster that people want it to be. The fact is that the issues Alberta had in 1981 (I lived there) were almost entirely due to same factor as the issues they have today - low oil prices. People blamed Alberta's economic woes on the NEP back then in the same way that O'Leary blames Notley for Alberta's problems today. And both were (and are) mostly nonsense.

The portion of the NEP that was bad policy (and is still bad policy in places like Saudi Arabia) was the artificial lowering of energy prices in Canada.

Other portions of the NEP (increasing the government's take of energy revenues vs the oil company's take and the establishment of a national energy company) were sound policy and in fact are exactly what has allowed Norway to build the world's largest sovereign wealth fund.

Edited January 15, 2016 by ReeferMadness

[Wilber]

The decline in our currency is proof of what the fossil fuel industry means to this country whether you like it or not. Norway has done well but it also has some of the highest taxes in the world.

Watch me not care...

Your country is now for sale to foreign buyers at bargain basement prices.

[August1991]

The decline in our currency is proof of what the fossil fuel industry means to this country whether you like it or not. Norway has done well but it also has some of the highest taxes in the world.

Your country is now for sale to foreign buyers at bargain basement prices.

For the record, in 2012, 1 US dollar would get you about 6 Norwegian kroner. Nowadays, 1 US dollar will get you about 9 kroner.

=====

Why has the price of oil fallen? Other than my OP, the collapse of OPEC is a factor. There is no longer a cartel.

Now, if Iran and Saudi Arabia go to war, then things would change.

Edited January 16, 2016 by August1991

[bush_cheney2004]

Why has the price of oil fallen? Other than my OP, the collapse of OPEC is a factor. There is no longer a cartel.

Agreed...OPEC no longer has the price swing leverage that it previously wielded in the market. Cheap capital caused by central bank monetary policy has financed and propagated more oil production, particularly in the USA. Oil prices will only go up when the supply side glut is diminished or interrupted.

Edited January 16, 2016 by bush_cheney2004

[ReeferMadness]

The decline in our currency is proof of what the fossil fuel industry means to this country whether you like it or not. Norway has done well but it also has some of the highest taxes in the world.

Your country is now for sale to foreign buyers at bargain basement prices.

I see you complaining about a situation and yet you don't appear to be disavowing the policies and decisions that produced the situation.

I'm not going to join you moaning about the dollar - you're doing enough for both of us. What are you proposing we do about it?

[eyeball]

For the record, in 2012, 1 US dollar would get you about 6 Norwegian kroner. Nowadays, 1 US dollar will get you about 9 kroner.

=====

Why has the price of oil fallen? Other than my OP, the collapse of OPEC is a factor. There is no longer a cartel.

Now, if Iran and Saudi Arabia go to war, then things would change.

If only eh?

I take it you're on money's side.

[Wilber]

I see you complaining about a situation and yet you don't appear to be disavowing the policies and decisions that produced the situation.

I'm not going to join you moaning about the dollar - you're doing enough for both of us. What are you proposing we do about it?

What situation? I don't dispute that Alberta could have done a better job of looking out for the future but it's citizens decided they would rather have royalties keep taxes low instead of saving for the future. Unless you are an Albertan, that has no effect on you. What you haven't done is explain what would have provided the same amount of wealth to this country over the past 30 years.

[Big Guy]

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.

[Wilber]

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.

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.

[ReeferMadness]

What situation? I don't dispute that Alberta could have done a better job of looking out for the future but it's citizens decided they would rather have royalties keep taxes low instead of saving for the future.

Your contention that Alberta's citizens made some sort of conscious "decision" to keep taxes low and knowingly accepted the inevitable conclusions of this policy is supported by exactly nothing. I visit Alberta regularly and I know lots of people there. Certainly, there has been a degree of smugness about the roaring economy, low taxes and lack of sales tax. But I've never met one who said "I understand and accept the consequences of not saving are that we'll have a run-up in unemployment and a massive deficit" or "I understand that we're giving away our birthright to multinational oil companies" or "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".

None of the downsides of Canada's ruinous and myopic focus on "rip it and ship it" economics have had any serious discussion; not at the political level and not in the media. And the people are, as always, squarely in the camp of ignorance is bliss. Until one day it's not.

Unless you are an Albertan, that has no effect on you.

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.