The sky high price of gasoline is pushing many Canadians to their financial limits. Usually when this happens, the pain at the pumps is offset by a burst in growth for the Canadian economy. High oil prices used to mean a surge in investments and hiring.
Not this time.
“Typically when oil prices are rising, Canadians get a bit of relief at the pump as a result of a higher Canadian dollar,” said CIBC’s chief economist Avery Shenfeld.
“In this case the Canadian dollar is not following oil prices, in fact it’s moving in an opposite direction at the moment and that’s adding to the pain a lot of households are feeling.”
The loonie generally goes up because there’s an expectations that Canada’s oil sector is about to go on a spending spree, but this time it’s being a bit more cautious despite some record profits.
A pumpjack works at a well head on an oil and gas installation near Cremona, Alta., in October 2016. While higher oil prices normally trigger a new round of investment, the industry is showing more wariness. (Jeff McIntosh/The Canadian Press)
Less investment appetite
The last time the global price of oil surged this high, starting in 2008, there was a surge in investments and a hiring boom. Commodity expert Rory Johnston says years of low prices and low profits have made companies wary of moving too quickly this time.
“There’s a lot of scarring that occurred over the past decade,” said Johnston, author of the newsletter Commodity Context and managing director at Price Street Inc.
The boom bust cycle of oil is well known. When prices are high, companies dig new wells, buy new equipment and hire new employees. They do everything they can to squeeze out as much profit as they can while prices are high.
But like everything else, oil markets are governed by supply and demand. Prices surge because there’s not enough oil to keep up with demand. As companies produce more oil, that gap in supply shrinks and prices fall.
The global price of oil fell in 2015 and remained persistently low for years. It tried to rally in 2019 but then the pandemic hit. Oil prices collapsed into negative territory and investors were clobbered.
Johnston says those low prices were particularly felt in relatively high-cost jurisdictions like Western Canada.
“On top of everything else, [Western Canada] was facing pipeline constraints and environmental push back,” said Johnston. “I think what you saw was a gradual transition toward less investment appetite in the oil sands in any given price scenario.”
Record-setting profits
Higher oil prices are still a net positive for the Canadian economy, said CIBC’s Shenfeld, but things are different this time.
“When they’re caused by disruptions in the global economy they are not as powerful as when they are caused by strength in economic activity around the world,” he said.
As the price of oil has skyrocketed these past few months, oil companies have heaved a sigh of relief that they’re finally posting profits again. Saudi Aramco reported a record-setting $40 billion profit in the first quarter of 2022. Canada’s Cenovus posted its best first quarter ever with $1.6 billion in profit.
“We are getting better revenue and wicked profitability, given the fact that they’re not investing a ton of money right now,” said Johnston.
But the bust part of the cycle now weighs heavily on the minds of oil companies and their investors.
Gas prices in P.E.I. on Tuesday. With high oil prices and a lack of new investment, some oil companies are seeing record profits. (Wayne Thibodeau/CBC)
“There’s much more of a tendency to be careful, to be cautious, to be sure these high prices are here to stay before plowing in as much money as we did during the last up cycle,” said Shenfeld.
Demand flexible, but steady
So will the high prices stay? These past two years have been some of the most tumultuous and volatile in modern history. It’s easy to wonder if maybe things have changed.
“I have an allergic reaction as an economist to any claim that this time is different,” said Brett House, formerly the deputy chief economist at Scotiabank.
He says there were many rash predictions that COVID-19 changed things forever. But more than two years in, those predictions aren’t panning out.
He says it’s clear the work-from-home phenomenon is not going away anytime soon, which gives some consumers more choice about how much they need to travel.
“What’s different potentially is the flexibility of demand in response to high oil prices,” said House. “We’re a bit less inelastic than we were previously.”
Not everyone can work from home, obviously. And not everyone who can work from home will do so — even when gas prices hit all new highs.
Cars drive on the Don Valley Parkway, in Toronto, on May 6. While the COVID-19 pandemic did give some workers more flexibility with commutes, there hasn’t yet been a large downturn in demand due to high gas prices. (Alex Lupul/CBC)
But if some of them do, that would reduce demand and allow the market to work its way back to balance more quickly.
But that comes down to our own habits. And as CBC columnist Don Pittis pointed out this week, even in the face of staggeringly high gas prices, for now at least, Canadian driving patterns are holding steady.
EDMONTON – RCMP say a second suspect has been arrested in the killing of an Alberta county worker.
Mounties say 28-year-old Elijah Strawberry was taken into custody Friday at a house on O’Chiese First Nation.
Colin Hough, a worker with Rocky View County, was shot and killed while on the job on a rural road east of Calgary on Aug. 6.
Another man who worked for Fortis Alberta was shot and wounded, and RCMP said the suspects fled in a Rocky View County work truck.
Police later arrested Arthur Wayne Penner, 35, and charged him with first-degree murder and attempted murder, and a warrant was issued for Strawberry’s arrest.
RCMP also said there was a $10,000 reward for information leading to the arrest of Strawberry, describing him as armed and dangerous.
Chief Supt. Roberta McKale, told a news conference in Edmonton that officers had received tips and information over the last few weeks.
“I don’t know of many members that when were stopped, fuelling up our vehicles, we weren’t keeping an eye out, looking for him,” she said.
But officers had been investigating other cases when they found Strawberry.
“Our investigators were in O’Chiese First Nation at a residence on another matter and the major crimes unit was there working another file and ended up locating him hiding in the residence,” McKale said.
While an investigation is still underway, RCMP say they’re confident both suspects in the case are in police custody.
This report by The Canadian Press was first published Sept. 13, 2024.
RICHMOND, B.C. – The Integrated Homicide Investigation Team says the 26-year-old son of a man found dead on British Columbia’s Sunshine Coast has been charged with his murder.
Police say 58-year-old Henry Doyle was found badly injured on a forest service road in Egmont last September and died of his injuries.
The homicide team took over when the BC Coroners Service said the man’s death was suspicious.
It says in a statement that the BC Prosecution Service has approved one count of first-degree murder against the man’s son, Jackson Doyle.
Police say the accused will remain in custody until at least his next court appearance.
The homicide team says investigators remained committed to solving the case with the help of the community of Egmont, the RCMP on the Sunshine Coast and in Richmond, and the Vancouver Police Department.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, have broken off without an agreement following 15 hours of talks.
Joe McCann, president of Amalgamated Transit Union Local 1724, says they stayed at the bargaining table with help from a mediator until 2 a.m. Friday and made “some progress.”
However, he says the union negotiators didn’t get an offer that they could recommend to the membership.
McCann says that in some ways they are close to an agreement, but in other areas they are “miles apart.”
About 600 employees of the door-to-door transit service for people who can’t navigate the conventional transit system have been on strike since last week, pausing service for all but essential medical trips.
McCann asks HandyDART users to be “patient,” since they are trying to get not only a fair contract for workers but also a better service for customers.
He says it’s unclear when the talks will resume, but he hopes next week at the latest.
The employer, Transdev, didn’t reply to an interview request before publication.
This report by The Canadian Press was first published Sept. 13, 2024.
