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Oil Prices: An Opinion Piece

best regina RRSP Advice

Chris Worby a Trusted Regina Financial Advisor talks about the price of oil.

 

I had a meeting in RRSP season 2013 where we were talking about the future of Canada. I said, and it sounded ridiculous at the time, “I wouldn’t be surprised if we saw oil in the $60 to $80 price range in about 2 years’ time.”

 

 

 

When I say it sounded ridiculous, I’m not kidding. Oil at the time was in the $95 to $100 range and looked like it would just stay up there. So what would make me say such a thing?

 

 

 

Well, I had two lines of thought at the time. The first one was simple: how can you have a global economic recovery with expensive oil or resources in general? If you think about these things as ‘input costs,’ it makes sense that if it costs lots of money to get productive it is harder to stay productive.

 

 

 

Pretty simple, that one.

 

 

 

The other is less simple but always present. All things seem to work in cycles. From seasons to economies, solar flares to daily routines, all things seem to work in cycles. The resource economic ‘cycle’ has been going on for a long time – since about 2000. It has been driven primarily by both a housing boom in the US as well as industrialization in China.

 

 

 

If you watch these things long enough, you start to see trends emerging. Not every boom is followed by a huge bust but often there is a pullback of sorts and 2 years ago I started seeing that happen for Canada.

 

 

 

Throw into this a historically high rate of consumer and mortgage debt for Canadians and we may have a bit of a recipe for disaster starting here.

 

 

 

As a resident of Saskatchewan and previously Alberta, I know that oil is a major part of our local economies and I hate to say, in my opinion, I think lower oil prices are here to stay. The first premise above is still true – economic recoveries are not sustainable with expensive energy. The second one is harder to figure out but, after 14 years of resources getting expensive and driving our economy, a shift is due and may be here now.

 

 

 

December 11, 2014

 

Chris Worby is a Trusted Regina based financial advisor and Wealth Management services provider servicing local Regina households and businesses since 2001.

 

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