How high Oil Prices Hurt Canada's Economy
by Benjamin Tal, 2004-12-27
The real story about oil prices is not that they are elevated now, but that they will remain elevated six to 12 months from now.
Geopolitical events have no doubt contributed to the recent upswing in energy prices, but what really makes them market movers is the fundamental gap between growing demand for energy and limited supply. Global crude demand rose at an annual rate of over 3% in 2004, the fastest pace in 24 years and more than three times its long-term average. China, India and the rest of East Asia account for half that growth. The timing of this demand surge couldn't be worse: it occurs just as OPEC spare capacity has fallen to a record low of about 600,000 barrels a day. Far from a temporary spike, relatively high oil prices are here to stay, at least as long as the world economy in general, and China in particular, continues to grow at today's robust pace. Look for prices to average between US$45 and US$50 in the next 12 months.
What is the impact on the Canadian economy? Canada is a large exporter of energy. More than half the country's production of oil and natural gas is exported, almost all to the United States. But Canada is also an oil importer--mostly from North Sea sources--to satisfy its own refinery feedstock requirements. Add all that up and you end up with an energy trade surplus of roughly 3% of GDP--nice to have, but not sizable enough to radically alter the economy's destiny......
To read the full article click here
The real story about oil prices is not that they are elevated now, but that they will remain elevated six to 12 months from now.
Geopolitical events have no doubt contributed to the recent upswing in energy prices, but what really makes them market movers is the fundamental gap between growing demand for energy and limited supply. Global crude demand rose at an annual rate of over 3% in 2004, the fastest pace in 24 years and more than three times its long-term average. China, India and the rest of East Asia account for half that growth. The timing of this demand surge couldn't be worse: it occurs just as OPEC spare capacity has fallen to a record low of about 600,000 barrels a day. Far from a temporary spike, relatively high oil prices are here to stay, at least as long as the world economy in general, and China in particular, continues to grow at today's robust pace. Look for prices to average between US$45 and US$50 in the next 12 months.
What is the impact on the Canadian economy? Canada is a large exporter of energy. More than half the country's production of oil and natural gas is exported, almost all to the United States. But Canada is also an oil importer--mostly from North Sea sources--to satisfy its own refinery feedstock requirements. Add all that up and you end up with an energy trade surplus of roughly 3% of GDP--nice to have, but not sizable enough to radically alter the economy's destiny......
To read the full article click here
posted by Chuck Brady at 9:47 PM
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