Oil Prices In Canada Essay

Canada ranks among the leading energy producers in the world, through oil production. These oil deposits rank oil sands of Canada as the largest oil deposits in the world after the Saudi Arabia and Venezuela. The only challenge with the oil sand deposits is that oil deposits are seen as unconventional. In effect, tar sands are recognized as one of the dirtiest energy sources in the world (Bailey & Droitsch, 2015). This fact is founded on the production factor; in producing one barrel of tar sands oil, the hazardous emissions are three to five times that of producing the equivalent of conventional oil. The Alberta oil sands are viewed as the single largest economic project in human history. The Canadian government and oil

Foreign oil dependency is a major topic that is hotly debated in US politics. The United States relies on imported oil for about 40% (in 2012) of petroleum consumed and is the world’s largest consumer of oil. About 53% of the foreign oil imported is from other Western nations such as Canada, Mexico and Brazil. 28% is from the Persian Gulf, 16% from Africa and the remaining from other areas of the world. Canada is currently the leading crude oil supplier to the US. Some believe that importing oil has benefits to our economy, while others believe it is a security threat.

Diverse and multi-faceted, the Canadian business market is one of the strongest functioning mixed market economies in the world. Within the Canadian economy, the oil and gas sector stands as one of the largest and most influential sectors. The oil and gas industry is unique as it affects almost every person and sector of the economy worldwide, whether it is through commodity or material input costs. In Canada, this growing industry could allow for the country to be the one of the “biggest energy producers in the world” leading to a massive paradigm shift globally.

This research topic focuses on the rise of Canadian oil production and how Canada’s economy has reacted to this rise. Canada is in a very unique position in terms of oil production. Within Alberta, Canada has had an abundance of oil that it could produce. However, oil prices used to be a lot lower than what they have risen to in recent time. With these low oil prices, no one could justify producing the oil within the Alberta. This is due to the issue that the oil located in Alberta is mostly from oil sands (Facts about Alberta’s, n.d.). These result in oil that is mixed with oil, clay, water, etc. Therefore, due to the nature of the oil sands, to extract the oil it is much more expensive than oil that is not from oil sands

Gasoline is a essential resource to most family’s daily life. The price of oil has plunged dramatically and reached the level that was last seen during the recession of 2009, even though it has started to bounce back a little bit. Brent crude, the international benchmark of oil price, was around $53 a barrel at the end of January 2015. The constant decline of the oil price may have affected all oil-producing countries, including Canada. The experience of plunging oil price and deprecation of the Canadian dollar lead me to analyze how Canadian economy was hit or benefited by low oil price.

“Every 10% drop in prices of oil adds 0.1% to the US economy, and the sooner the Iraqis start pumping, the faster the plunge in per-barrel prices. A quick war that ends with a new oil minister in place by the end of the year would bump up Iraq's production to 4 million barrels per day by 2006 from a current 2 million, collapsing prices into the low teens“ (Lynn J Cook 1).

The low price of oil can be directly felt when filling up a car’s tank with gas. For many years when the price of oil drops, there is growth within the economy, however, the recent decline has yet to deliver the traditional economic boom. Low oil prices have a negative impact on the U.S. economy as well as the global economy, with a direct correlation to politics. The low prices affect the U.S. economy in many ways. Cheap oil halts growth in businesses and makes companies less profitable. These actions will have ripple effects throughout the U.S. as a whole. There are small segments of business that will be more successful when oil is so inexpensive but the negatives far outweigh the positives.

Although the lingering effects of the Great Recession of 2007-2009 continue to dissipate and economic growth resumes, volatile global oil prices remain a source of concern for economists and consumers alike. While the experts debate the precise date at which peak oil will be reached and the search for alternative energy sources has assumed new importance and relevance, it is clear that the world's commercial infrastructure will depend on fossil fuels well into the foreseeable future. Indeed, some authorities caution that unless drastic steps are taken today, the world will deplete its fossil fuel resources long before commercially viable alternatives become available. In this environment, determining how surging oil prices affect the U.S. economy represents a timely and valuable enterprise. To this end, this paper provides a review of the relevant peer-reviewed and scholarly literature to determine the impact of surging oil prices on the U.S. economy, followed by a summary of the research and important findings in the conclusion.

Many businesses within the U.S. rely on Canadian oil. NAFTA decreased the price of oil imports which has lead to a more powerful economic partnership. According to U.S. Energy Information Administration, the U.S. imported $37.8 billion worth of crude oil in 1993. Most of the oil imports came from Saudi Arabia with 18.4 percent, only 14 percent of that came from Canada. The department states, “In 2014 Canada sold the U.S. $85.6 billion, or 33.8percent of $253 billion in total crude imports.” Canada’s oil has grown 997 percent, nearly all of Canada’s imports of oil has gone towards the U.S.

What affect does the price of oil and gas have on the economy? How does this affect the daily lives of the entire population? The preceding questions are the basis for the enclosed report. The primary objective of this report is to give a few reasons as to what causes prices of oil and prices of gas to rise. Among these reasons, speculation of things that may or may not happen, like a terrorist strike, is one of the leading factors. Another reason for the continued rise in prices of oil and gas is the constant growth that China is experiencing in population and energy consumption.

Golub (1983) and Krugman (1983) in their individual works concluded that oil exporting (oil importing) countries may experience exchange rate appreciation (depreciation) when oil price rises and vice versa. A depreciation of the USD reduces the oil price to foreigners relative to the price of their commodity in foreign currencies, thereby increasing their purchasing power and oil demand and in turn, pushing up crude oil prices in USD through the law of one price for tradable goods Bloomberg and Harris (1995). The positive correlation between oil and exchange rate dependence found in studies indicates that oil and currency markets move together and differs across currencies. Gasser and Goodwin (1986) found that crude oil prices has a significant impact on a broad range of macroeconomic indicators and this effect exceeded that of fiscal policy and sometimes exceeded that of

Recent decline in oil prices has generated a wave of public controversy about the possible consequences for oil exporters. This paper will examine the relationship between oil price dynamics and macroeconomic indicators in oil exporting countries such as Canada, Russia, Norway, Mexico and UK. The hypothesis of oil price effects will be tested by adopting the Vector Autoregression (VAR) framework, which has been widely used to examine the effects of changes in oil price on economic activity in other papers. The main findings of this paper conclude that there is a considerable relationship between oil prices and key macroeconomic indicators in the countries under analysis. The impact of oil prices varies among countries with the biggest and expanding effect in Russia where a direct impact of oil prices on GDP growth, exchange and interest rates is detected. A significant response of GDP on oil price shocks is also detected in Canada and Mexico. As for Norway and UK relationship between real GDP and oil prices is not so significant, however, oil price dynamics has a significant influence on other macroeconomic indicators.

Even the important contribution of Chapter 2, the proposed analysis requires a deeper study to understand the implications related to oil trade and how the expected oil production will be consumed by the demand. Considering only Canada for all the expected oil production from the Western provinces doesn’t seem enough. To achieve the forecasted production levels, producers of Western Canadian oil must find a market that values their oil at reasonable price. Without access to seaports, Alberta and Saskatchewan need to develop their transportation capacity to export this expected production. The challenge related to the increasing availability of Western Canadian oil and its distribution to domestic and international markets is imminent. Indeed, uncertainty in oil reserves and production implies uncertainty on future trade movements, and consequently, on oil corridors. It is now becoming a political, economic and national security matter that this oil finds access to other markets and export opportunities (McKenna, 2013). As for their actual markets, maintenance on existing pipelines and the necessity of upgrading refineries to process this crude oil from Western Canada create bottlenecks upstream that increase the constraints to allow the expected growth.

The report will demonstrate a clear understanding of the issues regarding Global oil prices fallen sharply over the past year. Also this report will highlight significant revenue shortfalls in mainly energy exporting nations, and the adverse effect this will have on importing nations who are likely to pay less to heat their homes or drive their car. The report will also critically analyze the effect of falling oil price on global economy.

A recent IMF working paper (No.11/194) “Oil shocks in a global perspective: Are they really that bad?” is a scholarly exposition downplaying the gloomy prognostications associated with surging oil prices. The importance of the paper is that it almost exclusively focuses on the economies of developing countries.