Canada Oil price shockgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
September 9, 2000
Oil price shock With all its cylinders firing, Canada's engine of growth has given us a long, smooth ride. But all that could change with the need to refill its tanks.
As everyone who drives a car knows, it costs a lot more at the pumps these days. That means less money to spend on other goods and services for drivers who haven't gotten a fat pay raise.
And with little hope that the Organization of Petroleum Exporting Countries will agree to a substantial boost in production when they meet tomorrow, the markets sent oil prices soaring to a 10-year high this week.
So as we shift from a summer of driving to a winter of heating our homes, we could well be in for more price shocks.
Some industries are also starting to complain about the higher cost of fuel. Truckers are fuming and the airlines are talking about raising their fares.
To the extent that higher oil prices spill over into higher prices for everything from building materials to groceries, inflation could pick up, which again means that consumers' dollars wouldn't go as far.
And those shrinking dollars would exacerbate the slowdown in the economy that already appears to be underway - unless workers force their employers to raise their pay.
But if that were to happen, and costs were to rise throughout the economy, inflationary pressures would continue to build, prompting the Bank of Canada to step in.
It would attempt to reverse the inflationary buildup by raising interest rates. Higher interest rates would curb the demand for goods bought on credit, particularly homes and cars, and thus ensure that a pronounced slowdown would actually take place.
We've certainly been there before - it's called recession.
If this scenario were to come to pass, some people would blame OPEC for putting narrow greed ahead of the interests of world economic stability. Some would blame the big oil companies, some the Bank of Canada, and, of course, the federal government for letting it happen.
But we would all do well to look in the mirror.
Despite the lessons of past oil shocks, the cars of choice today are the gas-guzzling minivans and SUVs. As a result, there has been virtually no improvement in fuel efficiency since 1982.
In Ontario, we elected a provincial government that chose tax cuts and roads over investments in mass transit.
We talked endlessly about a high-speed rail service in the Windsor-Quebec City corridor, but didn't get around to building one.
In short, we could have done much more to reduce our dependence on oil.
But we didn't. And so all we can do now is hope that U.S. President Bill Clinton can persuade the Saudis to substantially boost their production of oil.
-- Martin Thompson (email@example.com), September 09, 2000
This should be a bonanza for the development of gas-electric hybrid cars which get 60-80 miles per gallon.
-- Uncle Fred (firstname.lastname@example.org), September 09, 2000.
This is very odd -- Canada is a net exporter of oil -- we get 10% of our oil imports from them.
-- RogerT (rogerT@c-zone.net), September 09, 2000.
Odd, Roger? It's the exportation that contributes to the shortage in Canada. Same thing happens in summer: hot down there, air conditioners used more, a shortage is created and our prices rise here. But our incomes don't increase to cover the extra costs.
-- Rachel Gibson (email@example.com), September 09, 2000.
But finally stock prices for Oil related companies are starting to rise - more money coming from the large corporations which are loosening the purse strings.
And more money coming from investors who now see that the high prices are not going away this time, and maybe the IPOs will have to wait awhile.
This money coming to these companies translates into more drilling and shipping and refining - but it doesn't happen overnight.
-- Laurane Nash (firstname.lastname@example.org), September 11, 2000.