I’m in Alberta, the province that produces most of Canada’s oil, and there’s only one question on everybody’s lips: How long will the oil price stay down?
It has fallen by more than half in the past nine months — West Texas Intermediate closed at $48.29 US a barrel Wednesday — and further falls are predicted for the coming weeks.
This hits jobs and government revenues hard in big oil-producing centres like Alberta, Texas and the British North Sea, but its effects reach farther than that. “Clean” energy producers are seeing demand for their solar panels and windmills drop as oil gets more competitive.
Electric cars, which were expected to make a major market breakthrough this year, are losing out to traditional gas-guzzlers that are cheap to run again. Countries that have become too dependent on oil revenues are in deep trouble, such as Russia (where the rouble has lost half its value in six months) and Venezuela.
Countries like India, which imports most of its oil, are getting a big economic boost from the lower oil price. So how long this goes on matters to a great many people. The answer may lie in two key numbers. Saudi Arabia has $900 billion in cash reserves, so it can afford to keep the oil price low for at least a couple of years.
The “frackers” who have added four million barrels a day to U.S. oil production in the past five years (and effectively flooded the market), already owe an estimated $160 billion to the banks. They will have to borrow a lot more to stay in business while the oil price is low, because almost none of them can make a profit at the current price.
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