The recent drop in oil and gas prices in Canada is shaping up to be part of a larger, worldwide trend.
Anming Zhang, a Sauder professor who focuses on transport economics and policy and industrial organization, said the major factors in the drop in oil prices have to do with global supply and demand.
According to Zhang, the recently decreased prices for oil in Canada come from the nose dive in the crude oil prices worldwide since 2014.
“In July 2014, the crude oil price reached around $108 USD per barrel," said Zhang. "If you look at today’s price, it’s $53 per barrel. It is half of what he had a half-year ago. Canada will just follow that.”
Zhang also said that the world economic crises, including the 2008 Global Financial Crisis, the 2011 European Debt Crisis, and the reduction in growth of the Chinese economy, could also all be attributed to the low oil prices.
“On the demand side, there’s some slowing down in the world economy and trade, international trade, and the world GDP over the last few years," said Zhang.
Zhang said that the drop of China's GDP from 10 per cent in the early 2000s to seven per cent now had its effect on the price of oil and gas.
"The demand side has been dropping," said Zhang. "Naturally, economic activity is slowing down, and demand for oil has been going down as well.”
According to Zhang, there are a number of theories that try to predict the future economic consequences of the drop in oil prices. As another example, Zhang said that the price decrease could create problems for the Russian economy, which is heavily dependent on its oil and gas sector.
"60 per cent of the [Russian] government revenue is from the oil and natural gas activities," said Zhang. "So this will put a lot of pressure on Russian economy."
As the big drop in oil prices came quite unexpectedly for many Canadian customers and companies alike, the effects that the drop will have on longterm prices, including the fuel surcharges that plane companies currently charge passengers, are still uncertain.
"Essentially, the price of oil dropped too quickly," said Zhang. "It’s been a shock to the airlines, and they’re wondering if the price might go up again soon. Things are still uncertain, so they’re being cautious in case it’s only a temporary drop."
Still, Zhang also said that it is unlikely that plane companies will get rid of the fuel surcharges altogether, as the global demand for oil and gas is still disproportionate to the supply.
"The airlines will most likely decrease the surcharges – but not get rid of them altogether," said Zhang. "That would only be if the price of oil stayed this low for a long time – which I doubt.
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