The ups and downs for you and the economy if oil drops to $20/barrel

VANCOUVER (NEWS 1130) – You’re paying less for gas but more for cauliflower, taking advantage of cheap debt but losing job security — there are pluses and minuses for both you and the economy as the price of oil continues to collapse.

But what happens if a barrel of crude drops to $20 and stays there?

It’s a scenario that was almost unthinkable even a few months ago with oil as high as $65 dollars a barrel in May and at $95 as recently as July of 2014.

Maclean’s Business Editor Jason Kirby says we are already feeling the effects of lower oil prices, giving us a good idea of what would happen if it does hit the $20/barrel mark.

“There are upsides and downsides. The good news, obviously is that low oil means cheaper gas and Canadians are enjoying that already from coast to coast, saving billions of dollars annually at the pumps,” he tells NEWS 1130.

“But some economists argue we aren’t getting as much of the savings as we probably should. In the States, gas prices have fallen even further, but that’s because at the same time oil is down, the Canadian dollar is down.”

And while we may be paying less to fill up our cars and trucks, we are spending those savings at the grocery store.

“With that low dollar linked to oil we are also seeing higher inflation and food prices. Everyone seems to be talking about cauliflower these days. I don’t think that vegetable has seen this much attention ever but it’s the same for all sorts of other fruits and vegetables we import. They’re all going up in price because the Canadians dollar has been falling,” says Kirby.

While Canadian exports should benefit from a lower loonie, if the US economy keeps dragging we won’t see as much of a positive effect.

“Having oil down and having that transition to a less-oil focused economy is being hampered by the slowdown in the States.”

Kirby says the recent crash in crude prices might be similar to the freefall in the 1980s.

“You had, after adjusting for inflation, oil falling from triple digits down into the $20 to $30 range and staying there for the next 15 to 20 years. We’ve seen that the Canadian economy can survive in that environment, but it’s how long it takes for Canada to adjust to that where the pain will come,” he explains.

“We are a long way from getting to that nice balance. Stephen Poloz, the governor of the Bank of Canada, has warned Canadians that this is not just going to be a quick turnaround. We’re looking at a transition that could take several years.”

Kirby says Canadians should be cautious with their debt levels in the meantime.

“People have taken on very large debtloads on the assumption the good times would continue and their jobs would be secure. Now we are heading into a very rough patch and people still have a lot of debt. People really need to get their finances in order and start chipping away at that. It’s shocking how few Canadians have savings put aside.”

Top Stories

Top Stories

Most Watched Today