Low oil prices for a while

Low oil prices will not help the economy

Towards the end of 2014 the price of oil starting to drop rapidly, this is due to the large bubble that has developed over the past 10 years in oil.  Today the price of is around $33 a barrel, this is all due to the large glut of oil produced over the years by Saudi Arabia.  

The cost of production for the Saudi's has been mentioned to be anywhere from $2-$8 a barrel, thus maintaining production levels where the current price of oil is still makes sense for them.  This is especially true, since the lower the price of oil the less competition.  The cost of produce a barrel of oil for US producers is around $35 and for Canadians even higher at about $80 a barrel.

So what does all mean?  It means we have to get used to the price of oil being low for a while.  This causes concern for the Canadian economy since a large portion of it's economy is in the energy section.  As we head into February of 2016, the Toronto Stock exchange is heading into bear market territory down 20% from its highs.  This will continue to put downward pressure on the Canadian dollar throughout 2016.

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