Increased consumer spending and additional money for savings are two of the benefits to lower oil prices, federal Finance Minister Joe Oliver has told CBC News, sounding a reassuring note about how plummeting oil prices will affect the Canadian economy.
Oil prices have dropped dramatically this fall, with the West Texas Intermediate price dropping below $58 US on Friday for the first time in more than five years.
The cost for a barrel of oil is more than $10 less than the estimate used by finance officials to put together the department's projections in Oliver's fall 2014 economic update last month.
- Oil drops below $58 US as IEA slashes demand forecast
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The prices are also far below the estimates used by finance officials nearly two years ago, when the 2013 budget predicted a barrel of oil would be worth $96 in 2015 and trending up to $97 a barrel in 2017.
In an interview with CBC News, Oliver said he's still very comfortable the federal government will have a surplus in 2015. The fall economic update saw finance officials downgrade federal revenue by $2.5 billion a year for the next four years, but predicted a razor-thin surplus.
Oliver says he's continuing to monitor oil prices and the accompanying decline in corporate tax revenue.
"But you know it's not a one-way street and it's fairly complex, and we're not making any projections about where it's likely to settle or how long it will remain at a low level," Oliver said.
"Certainly people are seeing the advantages at the pump, and that will mean more money for consumption. It'll be more money for savings. Clearly a number of industries including transportation and manufacturing will benefit from lower energy costs."
Low oil prices won't be sustained
The low oil prices could also boost the global economy as consumers around the world see the same benefit Canadians will, said former parliamentary budget officer Kevin Page.
"This is a lot of disposable income for people around the world that are not net exporters," Page said in an interview with CBC News.
Page agrees with Oliver that Canadian consumers will likely boost consumption, and added that by spending less on gas and other fuel, they can start tackling the high amounts of consumer debt that are a potential risk to the economy.
"It's probably for the most part a bit of a wash," Page said.
It's likely the low oil prices won't be sustained either, he said, and in another year they could be back up to $80 or $85.
(Mobile users, view a graphic on oil prices from The Canadian Press.)
"I don't think anybody that's really rational thinks these prices are going to be sustained ... I think there will be a balancing effect overall," said Page.
Lower revenue for oil-producing regions
Provinces such as Alberta, Saskatchewan and Newfoundland and Labrador will see declining revenue because of lower oil company revenues, said Oliver, who spoke to CBC News ahead of a meeting with the provincial and territorial finance ministers in Ottawa on Monday.
Asked whether he was going to tell his counterparts not to worry about the price of oil, Oliver laughed.
"No ... I'm not going to put it in those terms. I am going to say we're monitoring it, we'll have a discussion about what the implications will be and, as you know, some of them are positive and others are negative."
There are a number of outside factors, including major economies including China and Europe, Oliver said. Low energy prices will benefit the United States, Europe, China and Japan.
"Happily the United States is doing quite well," the finance minister said. "They're on a roll. It looks very much like their growth will be sustainable and that's very important to Canada because we have the biggest bilateral commercial relationship in the world with the United States."
Oliver said he will consult a group of private-sector economists prior to finalizing the 2015 federal budget.
"There's a lot of volatility and we'll just see how it goes," he said.