Oil price plunge has some sweet with the economic sour: CIBC

The plunging price of oil has hurt Canadian stock prices, pulled the loonie lower, and fuelled worries of a prolonged economic and employment slump. Sure, prices at the pump have been lower, but the talking head line has been that’s but a small silver lining to an otherwise dire situation.

Maybe, but a new report by CIBC says those cheaper pump prices are hardly insignificant, when you consider the consumption habits of Canada’s drivers and industries. And for the parts of the country not named Alberta, lower oil prices are a good thing.

“People are panicking about the impact of lower oil prices in Canada because we are a net exporter of oil,” says CIBC economist Benjamin Tal, one of the authors of the report.

“(But) at the same time we are a huge huge consumer of oil.”

It’s usually a point of pride when Canadians realize they’re number one in the world at something (hockey, making Americans laugh). But perhaps less brag-worthy is Canada’s number one ranking among industrialized nations for per-capita energy consumption, as measured the Organization for Economic Co-Operation and Development.

Part of this can be blamed on geography, because Canada is large and cold, not to mention sparsely populated, so you have fewer people driving and flying further, and heating their homes longer. We also have large extractive industry sectors, such as energy and mining, which drink up bucketloads of oil, even as they pull more of it out of the ground.

And while cars and trucks have become more fuel-efficient over time, Tal says the gains in the past decade or so have been offset by Canadians driving more and buying larger vehicles (yes, minivan drivers, we’re looking at you).

“We call it the efficiency paradox,” says Tal. ”Yes it’s becoming more efficient, but because of that we consume more and more.”

He sees the majority of the economic benefit hitting the transportation sector, which accounts about 70 per cent of oil consumption.

The report is considerably more sanguine than much of the recent rhetoric about the potential impact of lower oil prices, much of which has focused on Alberta’s energy-based economy.

On Wednesday, Alberta Premier Jim Prentice said the oil price drop means the province will likely be in a deficit position until 2018, when he expects crude prices to rebound to about $75 a barrel from their current level just shy of $50 (down from $100 during the summer).

He also took pains to point out the price slump will indeed have an impact across the country, due to the economic links between the oil sands and other provinces. For instance, Canadians in several provinces commute to Alberta to work in the patch, while banks based in Toronto finance much of the work.

"It has been the Alberta economy that has been driving the national economy in this country for more than a decade,” he said.

And also this week, the Conference Board of Canada warned that Alberta has a good chance of falling into recession this year unless prices reverse.

Tal doesn’t dispute that, but says he thinks the recent discussion of the price move has undersold the benefits to the rest of the country.

“We have to distinguish between the west and the rest,” he says.

“From a macroeconomic perspective, if you do the math, the negative is larger than the positive. But I don’t want people to forget about the positive.”