First it was gold, now its OIL..Thoughts

JimmyHo

I guess everyone has noticed the big drop in gas prices at the pumps. Oil has lost a lot of its value in 2014 and it has continued into 2015. Any thoughts on where it will end up and the cause/effect of low oil? I would think this will have a huge impact on Alberta if it doesn't turn around soon. Can only help those companies that rely on cheap fuel costs (airlines, transportation).

Milo

Except that, unless this lull lasts for longer than a few months, those industries will not get to the point of renegotiating their contracts at the lower rates.

compuease

Milo;388356 wroteExcept that, unless this lull lasts for longer than a few months, those industries will not get to the point of renegotiating their contracts at the lower rates.

This is called fuel hedging and all (most) airlines do or have done it. (US Airways is the exception) The rest have multiple contracts of varying lengths and with various expiry times to prevent getting caught in price fluctuations. Hedging is used to a lesser % since the 2008/9 timeframe however. The international airlines will have contracts that expire in different parts of the world and are happening every month. They are definitely now at the point of negotiating contracts at lower prices. Local or regional airlines are somewhat different and have less flexibility.

kwsteve

No question this hurts Canada's energy sector. Layoffs are already occurring in Alberta. Layoffs loom in Alberta’s oil patch | Financial Post But the energy sector only accounts for about 9% of Canada's total GDP.

So for the remaining 91% of the economy low oil prices are not so bad.

The low dollar will help exporters, the manufacturing sector, and the transportation sector as mentioned. TD Bank predicts Ontario to lead Canada in economic growth next year.

Also, more money in the pockets of consumers will mean more spending. More spending will mean more jobs. I'm saving $15 on a tank of gas now compared to back in November. Sweet.

Although Canada’s growth in export of oil has increased in recent years, Canadian Imperial Bank of Commerce (CIBC) reports that oil production accounts for only 9 per cent of gross domestic products (GDP). The same report by CIBC indicates that lower gas prices will put $10 billion extra in the hands of Canadian consumers.

The Bad, the Good, and Other Effects of Declining Oil Prices for Canada | Finance | Business Review Canada