Wed, Jul 9th - 11:59AM
High oil prices hurting Canada and America's economies
Soaring oil prices are hurting North America. It may help Alberta's oil industry, but overall our dependency on oil is causing a combination of high fuel prices, higher food prices, stronger biofuel demand, inflation, lost jobs and an economic downturn.
Overseas the demand for biofuel is causing food riots as farmers sell their crops for biofuel instead of growing traditional food. The problem with biofuel however is that it is not environmentally friendly. Its basically like setting fire to whole fields of crops. Due to the fuel used in planting and harvesting biofuel actually causes more damage than conventional gasoline and oil.
An analysis by Bank of Montreal economist Douglas Porter argues
that oil prices at about US$120 or US$130 a barrel have passed the
``tipping point" where they become a net drag on the economy.
"The received wisdom in recent years is that the Canadian economy
benefits on net from higher oil prices, given the country's status as a
significant and growing net energy exporter," Porter writes in a report
"There's a strong case to be made that the surge
in oil prices crossed the tipping point this spring from providing some
economic ballast for the domestic economy to acting as a heavy anchor."
Crude oil was trading at about US$137 this morning, down from a record high
of just over $145 set last week. And Porter says that's a good thing.
The bank report says when high oil prices began taking off in the spring
and stayed at record levels, they began to sap U.S. and world growth,
with serious implications for Canadian industry and consumer confidence.
One key impact was collapsing American auto sales, which hurt Canada
even more than the United States because Canada produces twice as many
vehicles per capita.
"The real breaking point came when oil hit $120 because that's when we saw U.S. auto sales really crumble," Porter said.
The report adds that high energy prices have also undercut consumer confidence in Canada and leading to higher inflation.
And for good reason, Porter says, since sky-high gas, natural gas, fuel
oil and electricity prices are now likely burning up about seven per
cent of Canadians' disposable income, a record high.
High oil prices are even becoming a case of diminishing returns for Alberta, he
adds, since the oil producing province's economy is already overheated
and unable to fully benefit from continued price spikes.