Slump in oil prices negative, but not a disaster

The recent slump in oil prices has invoked memories of the 2015 crash, but the Canadian economy looks less vulnerable this time round. Back then, WTI had hovered at close to $100 for four years and investment had picked up accordingly. As the run-up and subsequent decline in prices happened much faster this time, investment never took off. The near-record Canadian oil price discounts are a bigger concern. Encouragingly, they are likely to narrow in the coming quarters. Official estimates suggest that surplus production is between 100,000 to 300,000 barrels per day (bpd). Firms are reportedly cutting over 100,000 bpd from production by the end of 2018, while oil exports by rail are likely to make up most of the difference by the middle of next year. However, given capacity constraints and delays to pipelines, firms will certainly no longer be looking to ramp up production in 2019 or 2020. That will remove a key pillar of support for economic growth, at a time when other areas of the economy are also slowing.