By now, you have probably heard about the pipeline drama that has been plaguing Canada recently, as well as the lower gas prices Canadian drivers have seen across the country. While those two topics don't seem like they would be connected, they actually have come as a result of each other. While low gas prices are nice, the falling price of crude oil thanks to pipeline issues is a threatening reality for Canadians - and it is much more important than cheap gas.
The way that Canadian gas price cuts and the pipeline topic connect is that gas prices have been falling in response to the decreased value of Canadian crude oil that continues to fall. This is the same oil that is backed by expansive Canadian production aimed to sell the product to other countries. With the price of crude oil falling below $18 a barrel for the first time since 2016, the Canadian economy has lost an average of $30 million a day.
The main issue that has resulted in the hit to our economy is that, right now, Canadian oil is being sold at a ridiculously low price in contrast to competitors such as the United States. Even with that discount, Canada still isn't able to sell as much oil as our neighbours across the border.
You might be wondering how that's possible, considering it would be natural to assume that buyers would want to get the cheapest rate - it's because Canada doesn't have the resources to move all their oil to the buyers.
Other contributing factors are the lower demand across the globe for oil and American competitors, but the ultimate cause of the issue is actually Canada's own fault. Prior to the current issue, Canadian companies decided to continue to expand their production even though they knew they did not have the means or extra resources to be able to send out this extra product.
That's right, the reason for the cheaper oil rate in the first place is because Canada has a significantly large volume of oil output but do not have any easy way to be able to send all of that product out. As of right now, many oil companies don't have enough pipelines so they are sending their oil out on trains and trucks and maxing out their storage while they try to find a solution.
Add the fact that pipelines are a tricky structure to build, considering you need to not only get approval to build one but also wait years for them to actually be complete, it's clear Canada has put itself in a tough spot.
If anything, the Prairies will hurt the most from this issue considering that if the current price of $18 a barrel holds for even just one year, then Saskatchewan would lose a whopping $500 million in royalties. Making it clear that while the oil situation is a sticky one, it's one that needs to be addressed soon before provinces begin to experience more serious consequences.
Source: Financial Post