Patricia Mohr is an economist and commodity market specialist in Vancouver. She developed the Scotiabank Commodity Price Index, the first of its kind for Canada.
Much has been said and written about the vital need to build oil export pipelines to the coasts of British Columbia and Atlantic Canada. Yet many Canadians still appear unaware of how critically important this is to our economy.
Canada owes its economic prosperity to trade – we are a trading nation – and crude oil dominates. In 2014, before the oil-price downturn, oil generated a $70-billion trade surplus, far outstripping any other export category, and virtually covered large, chronic deficits in autos and auto parts (minus-$15.9-billion), machinery & equipment (minus-$21.5-billion) and electronics (minus-$34.3-billion).
Even at the bottom of the oil-price correction early this year, crude remains the largest positive contributor to Canada’s merchandise trade, contributing more than $30-billion annualized in net export revenue as of August. Canada’s trade performance shifted from surplus to deficit in 2015 and is currently minus-$23.3-billion, with the impact of the oil price decline not nearly offset by a pickup in non-oil exports.
Strong oil export revenue has much to do with the ability of governments to fund social services across Canada. Western Canada’s forte is heavy oil – both blended bitumen from the oil sands as well as conventional heavy from Saskatchewan and Alberta.
Strong U.S. refinery demand for heavy oil (a cheaper feedstock than light oil) in the Midwest and in Houston partly accounts for Canada’s slight gain in export volumes to the United States in 2015-16, despite the increased availability of U.S. light oil from shales.
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