Record-high oil prices of the past week could hit all Canadian consumers squarely in the wallet, but will also bring windfalls to energy-producing regions and the booming oilpatch.
Because some parts of Canada have a thriving energy industry, high oil prices create obvious winners and losers, said TD Bank economist Craig Alexander.
“Within the Canadian economy, it creates a certain degree of transference from provinces that aren’t blessed with oil to provinces that are,” Alexander said from Toronto.
“And consumers across the board end up having fewer dollars in their wallets after filling up their cars.”
This means provinces such as Ontario and Quebec that don’t have significant deposits of oil will experience only the negative impacts of higher fuel costs on consumers and businesses.
For producing provinces such as Alberta, Saskatchewan and Newfoundland, higher oil prices still hurt consumers and many businesses, but will also provide benefits ranging from extra government royalties to spinoffs from larger profits at energy companies and increased activity in the oilpatch.
The federal government also enjoys extra energy royalties.
The Canadian Association of Petroleum Producers says oil and gas companies paid $16 billion last year to Canadian governments through royalties, corporate income taxes and land sales.
Nearly half of that, or $7.7 billion, went to the province of Alberta.
And given that spot prices for light crude oil ended last week nearly $13 higher than last year’s average price, Canada’s richest oil province can expect to get richer.
The Alberta government says it receives an extra $65 million for every $1 US year-over-year increase in the price of a barrel of oil.
The price of light sweet crude for next-month delivery hit a new high of $44.73 US earlier this month on the New York Mercantile Exchange amid concern over supplies from Russia and the Middle East.
Vince Lauerman, a global energy strategist for the Calgary-based Canadian Energy Research Institute, said there appears to be a “speculative premium” of about $15 US tacked onto each barrel of oil. “A good chunk of that is definitely what’s happening on the geopolitical front, but at the same time, concerns about U.S. gasoline supplies have been driving it along the way as well.”
Despite fears that huge demand during the heavy summer driving season would result in gasoline shortfalls in the U.S., stocks have so far held up, said Lauerman.
“But in high driving season there’s a concern that supply could be tight, especially if a major refinery goes down.”
Despite their price windfalls, OPEC members generally worry that sustained high prices will eventually destroy demand as economic growth slows and governments turn to new conservation policies and new technologies to loosen oil’s grip on the transportation sector, says Lauerman.
A secondary blow to the Canadian economy could come if sustained high energy prices start impeding the U.S. economy.
America is the world’s largest importer of crude and thus more vulnerable to higher oil prices than other countries. And when the U.S. economy falters, it tends to take the Canadian economy with it.
Pump prices tend to be where consumers feel the pinch of higher oil costs most painfully, but the market is more complex than that, says the lobby group for Canada’s fuel refiners and marketers. Along with global oil prices, North American wholesale gasoline markets and local competition also play significant roles in setting the price.
“There’s really no straight line you can draw between one event and what may or may not happen at the pumps,” says Faith Goodman, Ontario vice-president for the Canadian Petroleum Products Institute. “But what you can say is that volatility is here to stay.”
