Alberta's economic chain reaction will have you saying "domi-NOOOO!"

When oil prices decline as much as they have in the past two years, how big is the domino effectfor Alberta’s economy?


What’s Up.

When it comes to the success of the Canadian economy, the price of oil is like the big teetering domino at the start of a very, very long chain of dominos. The pre-recession peak price of WTI crude oil was close to US$110 per barrel in June 2014. The current price of oil is hovering around US$50. That’s a whopping US$60 plunge. We all know what happened in the past two years. Consecutive recessions and thousands of jobs gone from the oil patch and that’s not even the half of it.

 

Broken Down.

Let’s take a closer look at those numbers, the impact of them, and what it means for Albertans besides lost jobs. According to Alberta government budget documents, every $1 change in the price of oil, over the span of an entire year, has a net impact of $310 million. So here’s some quick math. A $60 change in oil price multiplied by $310 million equals $18.6B if oil averaged the same price over the entire year. Of course it didn’t but it gives a sense of how much money is at stake here. 

The domino effect of oil prices is exemplified by Alberta's most recentprovincial budget, forecasting a deficit of $10.3 billion this fiscal year and debt rising to $71.1 billion by 2020. With the recent double credit downgrading from AA to A+ from Standard and Poor, the deficit is now predicted to be $94B. Those are daunting numbers.. In the budget, the Alberta government made some capital expenditure announcements

  • $400 million for a new hospital in Edmonton
  • $131 million for a new continuing care centre in Calgary
  • $1 billion for 26 new schools in the province

These investments show how far an extra $18.6B could go in a higher oil pricing environment.

The falling domino, that is the price of oil doesn’t just impact people working in the industry, leading to thousands of job losses. An elevated oil price brings in crucial revenue for Alberta, which the province can use for the benefit of all in health-care, entertainment, education and much-needed infrastructure.

 

When oil prices decline as much as they have in the past two years, how big is the domino effectfor Alberta’s economy?

 

Britni WestonComment