CALGARY — With the Canadian dollar’s recent rise toward parity, and oil trudging higher over the last few months, the days of pricey gasoline might seem to be once again close at hand.
But when the loonie rises, it tends to soften the effect higher oil prices have on what Canadians pay for products made from crude such as gasoline, the vice-president of the Canadian Petroleum Products Institute said Friday.
When oil and the loonie rise in tandem “then you’re going to have a dampening impact of the cost of crude oil on the cost inputs of refined products for Canadians,” Tony Macerollo said.
“If the dollar stopped moving, but oil didn’t, you wouldn’t see that effect,” Macerollo said.
Canada doesn’t export a lot of refined products to the United States.
“We basically make just a little bit more than we consume in Canada,” he said.
And the products that are sold in markets like California, for example, tend to be so specialized that swings in the exchange rate don’t sway buyers’ decisions in any significant way.
“If you’re exporting, the actual impact on that is going to be dependent on the degree to which the markets our refineries serve can readily go to a substitution somewhere else in the world,” Macerollo said.
Canada is the biggest exporter of oil to the United States, as refineries in the U.S. Midwest and Gulf Coast thirst for the heavy type of crude our country produces.
“When the Canadian dollar is rising, the seller receives fewer Canadian dollars per U.S. dollar,” said Judith Dwarkin, chief economist at Ross Smith Energy Group.
“If you’re an exporter relying on sales into the U.S. market, a rise in Canadian dollar is not helpful.”
However, companies get a bigger bang for their Canadian buck if they’re bringing in equipment or services from the United States.
“But I think that’s a relatively small piece of the puzzle,” Dwarkin said.
“There’s some offset if you’re buying cross-border services or goods. But it’s only a very small sweetener of the situation.”
The loonie’s march toward parity would also have an impact on a number of U.S. energy producers that have major operations in Canada, like ExxonMobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX) and Devon Energy Inc. (NYSE:DVN).
“Their cost of doing business in Canada goes up because their U.S. dollars buy less in Canada,” said Dwarkin.
Scotiabank commodity specialist Patricia Mohr calls the effect of the rising loonie on the energy sector a “two-edged sword.”
“It’s not necessarily all a bad thing, but I think most resource producers and manufacturers in Canada would much rather see a lower currency rather than a higher,” she said.
The loonie closed at 98.39 cents US on Friday, off 0.26 of a cent from a day earlier.
Oil prices settled at US$80.68 on the New York Mercantile Exchange on Friday. A report Thursday by the Conference Board of Canada, an Ottawa-based think-tank, predicted crude prices will remain in that range this year.