Oil drop sends Ottawa into damage control – by Shawn McCarthy and Eric Reguly (Globe and Mail – November 28, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA – OPEC has thrown the global oil markets into turmoil with its decision not to cut its production targets in the face of a supply glut, a move that will have dire consequences for Canadian producers but offers some welcome relief at the gas pump for consumers.

Led by Saudi Arabia, the 12-member cartel ended a fractious meeting in Vienna on Thursday with a stand-pat strategy, pledging only to stick to its existing 30-million barrels-a-day target. However, increased production from non-OPEC countries, particularly Russia and the United States, means global oil supplies will be significantly higher than consumers will need in the coming months.

As a result, global crude prices – and oil company shares – plunged on Thursday.

The price of the benchmark North American crude, West Texas Intermediate, fell $4.46 (U.S.) – or 6 per cent – to $69.05 a barrel, while the leading international benchmark, North Seat Brent, lost $5 and fell to a four-year low of $72.26. Six months ago, the North American price hit $107 while Brent peaked at $115.

On the Toronto Stock Exchange, the index of energy stocks was off 7.4 per cent Thursday, as major oil stocks suffered sharp declines, while the Canadian dollar fell 0.7 cents to 88.22 cents (U.S.).

Gasoline prices have already dropped below $1 a litre in Western Canada, and could sink that low in Ontario after peaking at $1.42.9 in Toronto in June. Pump prices are now near four-year lows. That reduction in fuel costs is akin to a tax cut for consumers and could lead to increased spending in other areas – just as the holiday shopping season begins in earnest.

The federal government has reduced its revenue forecasts by some $2.5-billion a year as a result of lower oil prices. Finance Minister Joe Oliver said Thursday that while lower prices help some sectors, the Canadian economy as a whole will suffer.

Alberta Premier Jim Prentice said he will be meeting with industry officials to assess the potential for economic damage.

“I think that everyone understands that in a persistent low-price environment, there will be consequences for all of us in this province,” he said. “This province is tough and the people here are resilient. We will deal with this. We’ve been through low-price environments before and we’ll undoubtedly experience them again. We will manage our way through it.”

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