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oil extraction

Albertans are a nervous bunch. Bummed about bad news regarding the Alberta economy? Hearing the dreaded “R” word again?

Unless you have been living under a rock you’ve heard that the global price of oil (the black stuff, not cooking oil) has plummeted by more than half since last June and depending on who or what you are listening to, could drop to under $40 US a barrel before rebounding.

So why is this happening? It’s complicated. But it boils down to the simple economics of supply and demand (refer to your Econ text book if you are rusty on this point). Bottom line? If supply is greater than demand, the price drops. There’s currently a Mexican standoff between the major oil producing countries and no one is blinking.

That makes Albertans skittish about the economy.

While it may take a little wind out of our sails temporarily, there is an upside. Really.

The good news story is it creates opportunities.

Lower oil prices mean it’s cheaper for people to live (think about your savings at the gas pump) and reduced operating costs for complementary industries to do business.

The overall economic benefits are significant but good news doesn’t sell newspapers so here it is:

  • The U.S. economy is predicted to grow more that 2.5% in 2015. That’s huge and great news for us Albertans because the U.S. is our biggest market. Expansion in the U.S. housing market supports the potential for further opportunities for Alberta construction, forestry and transportation businesses. Positive movement in these sectors will help support job creation, particularly among small businesses, and will help to diversify Alberta’s export portfolio.
  • With the current drop in oil prices and a lower Canadian dollar, oil exports to the U.S. will be partially offset with greater volumes. A 3 per cent increase in oil exports from Alberta is forecast for 2015.
  • The 14 per cent slide in pump prices since the end of September (and steeper in some regions) means Canadians are collectively saving about $165.2 million dollars. Every. Single. Week. This could create a $20 Billion cash pile in people’s pockets that they can spend elsewhere.
  • This will all trickle down to mostly the little guy. The best news is these benefits will accrue primarily low to middle income households because fuel costs eat up a larger share of limited income.
  • After significant price run ups the past few years, Calgary housing prices are predicted to increase by about 3.0% for single-family homes and about of 2.5% for condos. Sales are expected to be roughly the same as 2014.
  • Housing supply levels are expected to rise. Given previously tight market conditions, rising supply will simply push the market toward more balanced conditions, supporting price stability.
  • The Bank rate recently dropped by .25 points and is expected to remain historically low into 2016. This will trickle down to mortgage rates as well with banks competing for mortgage business.

This good news story supports investing in a large purchase such as a new home sooner rather than later – unless of course you want to pay more. Lending rates have never been better, lower upward pressure on housing prices, more inventory to choose from, and a continuing tight rental market.

Now that’s good news!