VANCOUVER (NEWS 1130) — Plunging oil prices could have a significant impact on Canada’s economy.
Prices for Brent Crude, the international standard, have declined by over 20 per cent in global trading so far this Sunday.
NEWS 1130 business editor Richard Southern says a drop this dramatic hasn’t been seen since the Gulf War in 1991.
“This is the definition of a crash,” he says, adding two key factors are sending prices plummeting.
#BREAKING – The price for oil is in absolute free fall, down 27% to $30.00 per barrel. Brent crude futures plummeted 30% to $32.05 per barrel. Reduced demand due to the coronavirus and an OPEC & Russia price war are the reasons. Goldman Sachs says oil could hit $20. pic.twitter.com/kr06RtMiiW
— Richard Southern (@richard680news) March 8, 2020
The first is the global outbreak of COVID-19.
“Oil has already been sliding the last week or two because of the coronavirus. We’ve seen production grind to a halt in China. The world’s using less oil because of the coronavirus,” he explains.
Demand is falling as people cut back on travel around the world. The worry is that the new coronavirus will slow economies sharply, meaning even less demand.
The second is a conflict between Saudi Arabia and Russia.
“What we saw develop over the weekend was basically a war for dominance, in that Saudi Arabia actually hiked the amount of oil it’s taking out of the ground. Russia’s probably going to do the same. So we’ve seen this this price war develop between Saudi Arabia and Russia. That combined with the coronavirus, has ‘Texas tea’ tumbling big time tonight.”
Southern says this is likely going to have a significant impact on oil producing areas of our country.
“This is a disaster. I mean, really there’s no other way to put it when it comes to what it’s going to mean for Alberta’s economy. I think in the last budget in Alberta they had forecast the price of oil at $57 a barrel. And here we are now down to about $30 with Goldman Sachs tonight saying oil will hit $20. This is bad for Alberta. It’s certainly bad for Canada’s overall economy, and it could mean job losses in the oil patch.”
He says he expects the stock market will be hit hard Monday morning.
“A 30 per cent drop for oil–you don’t need to be an expert to figure out what that’s going to mean for Bay Street. The Toronto Stock exchange is a market so heavily geared towards energy companies that when you see a drop for oil like we’re seeing here tonight, it’s certainly going to take its toll on the TSX. I think we’re in for a pretty messy Monday.”
With files from Lisa Steacy and The Associated Press