Expert explains the fall of the 'petro-loonie'
The vice-president of energy research at ARC Financial Corp. and a forecaster for commodity prices, Jackie Forrest breaks down her concerns for the oil market in the coming year, and exactly how the low price per barrel and the low value of the loonie are related.
Listen to Jackie Forrest's interview with Checkup guest host, Suhana Meharchand..
Suhana Meharchand: Help me to understand how the low cost of oil and the low loonie—sometimes called the "petro-loonie"—are related.
Jackie Forrest: Basically, the value of Canadian exports have gone way down because a big part of Canada's exports are oil and gas—in addition to other commodities. The value of oil and gas has been cut in half, which directly impacts our exports, and it hurts the value of the loonie. And, in general, the economy isn't doing very well, which hurts the value of the loonie, because people don't want to invest here compared to what it would be if we had a strong economy.
SM: One of the biggest concern, that I hear, is that the price per barrel and the price at the pump, don't reflect each other. Why is that?
JF: There's many factors, but one of the biggest things is that the price at the pump is based on U.S. dollar value. As our Canadian dollar has lost value, we have to spend more currency on the same amount of gas. Our currency has gone done about 20 per cent since this time last year, which has offset some of that drop in crude oil price for the Canadian consumer.
SM: We know the effect the low oil prices are having on the Alberta job market and the economy. What is the ripple effect that you envision for the rest of the country?
JF: Currency is a good example. Some people benefit from it but for the vast majority it just makes things more expensive. There are jobs that radiate beyond the borders of Alberta that are associated with oil and gas: manufacturing, and workers who come from Maritime provinces that are feeling the hurt from the drop in oil prices.
SM: Where do you see the price of oil going?
JF: I think this year is going to be quite challenging. I think we have too much supply, especially if Iran adds much more to the market. There's a wide range of views about how much oil they can produce immediately. There's also worries about the global economy and what that means for oil demand. I think this year is going to continue to be challenging. But, many oil and gas companies are cutting their future capital expenses for new oil and gas exploration. Over time that should balance the market and strengthen prices.
SM: Does the price of a cucumber anger you right now?
JF: Like every other Canadian I'm feeling it at the grocery stores. I think Albertans are getting the double-whammy with people losing their jobs, and the cost of everything going up. It's pretty depressing going to the grocery store these days.
Jackie Forrest's and Suhana Meharchand's comments have been edited and condensed.