The ramifications of $80 oil
Posted Aug 9, 2011 3:39 pm.
This article is more than 5 years old.
The debt debacles in the U.S. and Europe have caused a rout in oil prices, sending the price of a barrel of crude from $97 U.S. last week to below $80 on Tuesday.
But why hasn’t the downward spiral translated into much lower prices at the gas pumps for consumers?
“With crude being paid for in U.S. dollars,” says Roger McKnight, Senior Petroleum Adviser at En-Pro International, “the Canadian public isn’t seeing that drop as dramatically because they’re using a weaker” (Canadian) “dollar to pay for it.”
McKnight adds investors are betting global demand for fuel will dip if another recession hits.
“There’s a fear factor here that is just running rampant right now, not only in the stock market but with the consumer in general,” he says
When crude took a big dip at the onset of the 2008 recession, many oilsands producers put their big-ticket projects on hold.
John Stephenson is a portfolio manager at First Asset Investment Management says he doesn’t see a repeat of that bleak situation.
“Clearly we’re still profitable at $83 oil, but as you get down to 70 and stuff it gets a little dicier,” says Stephenson who says investors are looking at weak growth prospects for Europe and the United States.
The price of a barrel of oil plummeted to below $80 U.S. a barrel on Tuesday in the hours following a U.S. Federal Reserve announcement that, while holding the line on interest rate increases for another two years, lacked any news of economic stimulus measures.
Not everyone shares the negative sentiment however.
OPEC, the Organization of Petroleum Exporting Countries, says it expects global fuel demand to keep growing, despite troubles in the U.S. and Europe.
