Read the comments below the article too…some good points are made. One is when concerning opec nations what is more beneficial to them (because they don’t care about USA or Canada producers in fact they want them eliminated keep this in mind) cutting production may raise oil prices but they lose market share allowing USA and Canada amongst others to fight back or gain some more market share . Interesting question arises what is the gain vs loss ratio to open countries who want to cut production and essentially lose some market share but gain on the back end of a higher oil price? Or do they continue to produce at lower prices but maintain a larger market share and price out the competition in USA and Canada ?
( when i say USA and Canada I also mean non opec nations as well ) I mean these prices are literally slaughtering the USA and Canadian producers ….I am sorry I heard through third party that the losses and bankruptcies in the USA oil companies and workers will trump by far the 2008 housing crisis . I am sorry I don’t have link it was through a friend if I find it I will post it. But if these prices don’t go back to at least 40/bbl in the next 6 months the USA oil industry will be completely gutted the storages are completely full the tankers are sitting off shore waiting for higher prices with full hulls …this is going to decimate Alberta …simply because the cost to produce our oil is extremely expensive. Like 1 rig site with a triple on it that entire rig site is 1 million a day approx to run everything pay wages ,rentals ,shipping ,pipe,food ,fuel,lease,trash haul,ect Ect vs open nations where it is shallow and literally can leak out of the ground takes nothing to drill to it they don’t burn 30k$ bits in 4 hrs drilling through chirt 1 bit will last 2-3 holes in many cases.
Anyway great post Kate this no matter how you slice it will last a while 18-24 months I think and that’s enough to really gut Alberta and Canada /USA oil industry.
I think it’s a good thing in a way I think it will teach the uber progressives a tough lesson in reality. When they can’t sip the lattes in a Calgary office vote for nenshi and noteley and mock the very people who do the dirty work of getting the oil out of the ground.
I thought we were suffering from Dutch Disease. Why isn’t Ontario thriving with $30 oil? Could it be that the Ontario economy died from Liberal mismanagement and there is no such thing as Dutch Disease?
Why do people say that Harper put all his eggs in one basket with the oil industry when at it’s maximum it was like 5% of the GDP. That doesn’t sound like much. How much should it be?
It’s a little bit of a tough choice honestly. My family would much love for high oil prices to get things going in Alberta again, but we’re also aware that low oil prices are putting a beating to Middle East countries along with all the other usual suspects. Venezuela already appears to be over the tipping point but another few months of low oil will continue to put the proverbial foot to the government’s throat.
Scar, I think you are correct. when rampant socialism destroys the manufacturing sector the cheapest oil in history is not going to fix things, especially when the gas prices are kept high to keep tax revenue as high as possible without getting someone lynched.
The OPEC countries aren’t refusing to cut production because they don’t want to lose market share. They aren’t cutting production because they need the money. It’s a similar story with the tight oil plays in the USA. Once they’ve drilled the well and started pumping, it doesn’t cost much to keep pumping out the oil. They are “all-in” and need to get their money back. They will with lower oil prices, it just takes longer.
What is happening is a steady drop in drilling new wells. But the effect of this won’t be felt for awhile. This is what is confusing people about the over-supply and yet the lack of a cut-back. There is a time lag of 12-18 months (think SEP-2016).
The American producers will have to blink first because ultimately they need to make money. Countries like Venezuela can just suffer with less. Canada is in even worse shape than the USA.
It is ironic that the NDP and Liberals have taken power and talk about diversifying away from fossil fuels at a time when the world oil price is collapsing. Canadians will learn first hand over the next 3 years what a non-fossil fuel economy feels like. First in Alberta, then in Quebec when the transfers end and finally in Ontario which is looking to the Federal Government for money. In 3 years the Fed will likely be taking transfers away from rich Ontario, rich being a relative term by then.
The “manufacturing sector” is the problem. Ontario’s five largest manufacturers are automotive. What happened to them isn’t socialism. It’s called Mexico.
Beyond the automotive industry Ontario doesn’t really have much of a manufacturing sector. Take out the auto industry and mining and after RIM you’re down to Ontario Hydro and the LCBO.
“First in Alberta, then in Quebec when the transfers end”
There is no scenario where the $9 billion transfer to Quebec will end. The rules might have to be rewritten but it isn’t going to end. And it doesn’t matter if the government is Liberal or Conservative.
Low oil prices are bad for producers, especially as pointed out, the higher cost producers. But, low oil prices should be good for consumers. ON should be doing better, but the Wynners have successfully removed much of the provincial industrial base, albeit along with other factors, to prevent a recovery.
But the biggest problem, far and away, is government behaviour over oil prices. When AB was rocking at $120bbl, governments there, including the outgoing PC’s, squandered the increased revenues, indeed they set the cost of government, and thus dependence on oil tax revenues ever higher, to unsustainable levels; heck, they even managed a deficit. It’s one-trick pony statism, not Dutch disease that’s the problem.
The voters booted them as a result, except for the unintended (expected) consequence – an even more doctrinaire and statist cabal that seeks to vilify business, particularly O&G, though is happy to milk the cash cow. They’ve even decided to take out the family farm and ranch while they’re at it. AB could well do without their help, as TROC could do without sycophantic Trudeau and his corrupt mentor Wynne.
The NDP continued the reliance on high revenues, but incomprehensibly is in the process of taxing and regulating what’s left of the industry out of business, yes maybe too late for them when the Chinese cavalry arrives by decade’s end. It’s also unlikely we will see much pipeline built either.
Overall what should have been a temporary balancing act, between producers & consumers, that has happened many times before, has now blossomed into a permanent deficit and statist revenue crisis. My brother in law worked at the oilsands in the 70s; though it all it has continued to grow.
Instead of promoting that, we have maxed out, tax-addicted governments replete with redundant bureaucracies, adopting socialist, anti-growth policies as they expect a growing share of a purposefully dwindling economic output, putting economic recoveries in jeopardy if not out of the question with boomers exiting the workforce into pensions and medical care. The poor get crushed but lots of phony baloney jobs go statists’ way, again, putting fully on display Hayek’s idea of the fatal conceit of government control of the economy, with its historical failures, internationally and locally also on full display.
However, economics are extremely elastic. The flow of cheap oil cannot last indefinitely, The economic conditions which spurred Oil shale, and oil sands extraction in the first place, will eventually return. Economics (which is really the study of human nature) will be the FINAL determining factor.
Harper had nothing to do with the oil industry. We don’t have a planned economy. The resource is there and enterprising people exploited it. That would have happened in any free country. Government can destroy the oil industry, but they didn’t create it.
Steve, when the government beats the crap out of industry with unnecessary rules and regulations, and taxes, that industry will go elsewhere and socialists are responsible for the laws, rules and regulations.
Lower gas prices means americans wont be going to ridiing bicycles in big masses or turning freeways into dumb elevated bike paths as invioned by the usial granola munchers Tree huggers
Read the comments below the article too…some good points are made. One is when concerning opec nations what is more beneficial to them (because they don’t care about USA or Canada producers in fact they want them eliminated keep this in mind) cutting production may raise oil prices but they lose market share allowing USA and Canada amongst others to fight back or gain some more market share . Interesting question arises what is the gain vs loss ratio to open countries who want to cut production and essentially lose some market share but gain on the back end of a higher oil price? Or do they continue to produce at lower prices but maintain a larger market share and price out the competition in USA and Canada ?
( when i say USA and Canada I also mean non opec nations as well ) I mean these prices are literally slaughtering the USA and Canadian producers ….I am sorry I heard through third party that the losses and bankruptcies in the USA oil companies and workers will trump by far the 2008 housing crisis . I am sorry I don’t have link it was through a friend if I find it I will post it. But if these prices don’t go back to at least 40/bbl in the next 6 months the USA oil industry will be completely gutted the storages are completely full the tankers are sitting off shore waiting for higher prices with full hulls …this is going to decimate Alberta …simply because the cost to produce our oil is extremely expensive. Like 1 rig site with a triple on it that entire rig site is 1 million a day approx to run everything pay wages ,rentals ,shipping ,pipe,food ,fuel,lease,trash haul,ect Ect vs open nations where it is shallow and literally can leak out of the ground takes nothing to drill to it they don’t burn 30k$ bits in 4 hrs drilling through chirt 1 bit will last 2-3 holes in many cases.
Anyway great post Kate this no matter how you slice it will last a while 18-24 months I think and that’s enough to really gut Alberta and Canada /USA oil industry.
I think it’s a good thing in a way I think it will teach the uber progressives a tough lesson in reality. When they can’t sip the lattes in a Calgary office vote for nenshi and noteley and mock the very people who do the dirty work of getting the oil out of the ground.
I thought we were suffering from Dutch Disease. Why isn’t Ontario thriving with $30 oil? Could it be that the Ontario economy died from Liberal mismanagement and there is no such thing as Dutch Disease?
Why do people say that Harper put all his eggs in one basket with the oil industry when at it’s maximum it was like 5% of the GDP. That doesn’t sound like much. How much should it be?
It’s a little bit of a tough choice honestly. My family would much love for high oil prices to get things going in Alberta again, but we’re also aware that low oil prices are putting a beating to Middle East countries along with all the other usual suspects. Venezuela already appears to be over the tipping point but another few months of low oil will continue to put the proverbial foot to the government’s throat.
Scar, I think you are correct. when rampant socialism destroys the manufacturing sector the cheapest oil in history is not going to fix things, especially when the gas prices are kept high to keep tax revenue as high as possible without getting someone lynched.
The OPEC countries aren’t refusing to cut production because they don’t want to lose market share. They aren’t cutting production because they need the money. It’s a similar story with the tight oil plays in the USA. Once they’ve drilled the well and started pumping, it doesn’t cost much to keep pumping out the oil. They are “all-in” and need to get their money back. They will with lower oil prices, it just takes longer.
What is happening is a steady drop in drilling new wells. But the effect of this won’t be felt for awhile. This is what is confusing people about the over-supply and yet the lack of a cut-back. There is a time lag of 12-18 months (think SEP-2016).
The American producers will have to blink first because ultimately they need to make money. Countries like Venezuela can just suffer with less. Canada is in even worse shape than the USA.
It is ironic that the NDP and Liberals have taken power and talk about diversifying away from fossil fuels at a time when the world oil price is collapsing. Canadians will learn first hand over the next 3 years what a non-fossil fuel economy feels like. First in Alberta, then in Quebec when the transfers end and finally in Ontario which is looking to the Federal Government for money. In 3 years the Fed will likely be taking transfers away from rich Ontario, rich being a relative term by then.
The “manufacturing sector” is the problem. Ontario’s five largest manufacturers are automotive. What happened to them isn’t socialism. It’s called Mexico.
Beyond the automotive industry Ontario doesn’t really have much of a manufacturing sector. Take out the auto industry and mining and after RIM you’re down to Ontario Hydro and the LCBO.
“First in Alberta, then in Quebec when the transfers end”
There is no scenario where the $9 billion transfer to Quebec will end. The rules might have to be rewritten but it isn’t going to end. And it doesn’t matter if the government is Liberal or Conservative.
Low oil prices are bad for producers, especially as pointed out, the higher cost producers. But, low oil prices should be good for consumers. ON should be doing better, but the Wynners have successfully removed much of the provincial industrial base, albeit along with other factors, to prevent a recovery.
But the biggest problem, far and away, is government behaviour over oil prices. When AB was rocking at $120bbl, governments there, including the outgoing PC’s, squandered the increased revenues, indeed they set the cost of government, and thus dependence on oil tax revenues ever higher, to unsustainable levels; heck, they even managed a deficit. It’s one-trick pony statism, not Dutch disease that’s the problem.
The voters booted them as a result, except for the unintended (expected) consequence – an even more doctrinaire and statist cabal that seeks to vilify business, particularly O&G, though is happy to milk the cash cow. They’ve even decided to take out the family farm and ranch while they’re at it. AB could well do without their help, as TROC could do without sycophantic Trudeau and his corrupt mentor Wynne.
The NDP continued the reliance on high revenues, but incomprehensibly is in the process of taxing and regulating what’s left of the industry out of business, yes maybe too late for them when the Chinese cavalry arrives by decade’s end. It’s also unlikely we will see much pipeline built either.
Overall what should have been a temporary balancing act, between producers & consumers, that has happened many times before, has now blossomed into a permanent deficit and statist revenue crisis. My brother in law worked at the oilsands in the 70s; though it all it has continued to grow.
Instead of promoting that, we have maxed out, tax-addicted governments replete with redundant bureaucracies, adopting socialist, anti-growth policies as they expect a growing share of a purposefully dwindling economic output, putting economic recoveries in jeopardy if not out of the question with boomers exiting the workforce into pensions and medical care. The poor get crushed but lots of phony baloney jobs go statists’ way, again, putting fully on display Hayek’s idea of the fatal conceit of government control of the economy, with its historical failures, internationally and locally also on full display.
However, economics are extremely elastic. The flow of cheap oil cannot last indefinitely, The economic conditions which spurred Oil shale, and oil sands extraction in the first place, will eventually return. Economics (which is really the study of human nature) will be the FINAL determining factor.
Harper had nothing to do with the oil industry. We don’t have a planned economy. The resource is there and enterprising people exploited it. That would have happened in any free country. Government can destroy the oil industry, but they didn’t create it.
Steve, when the government beats the crap out of industry with unnecessary rules and regulations, and taxes, that industry will go elsewhere and socialists are responsible for the laws, rules and regulations.
Lower gas prices means americans wont be going to ridiing bicycles in big masses or turning freeways into dumb elevated bike paths as invioned by the usial granola munchers Tree huggers