Positive effect of rising oil prices diminishing: Carney

OTTAWA — The recent run-up of oil prices is not bringing the usual benefits for the economy and an enduring or pronounced spike will hurt consumers, Bank of Canada governor Mark Carney told The Canadian Press.

OTTAWA — The recent run-up of oil prices is not bringing the usual benefits for the economy and an enduring or pronounced spike will hurt consumers, Bank of Canada governor Mark Carney told The Canadian Press.

Carney said the current escalation in oil prices means consumers in the East are paying more for fuel and energy producers in the West are earning less than would be expected.

And he is increasingly concerned about the possible impact of the increase on the economy even though Canada exports crude and producers realize greater profits from higher prices.

“As a whole, higher oil prices are a net positive for the Canadian economy,” Carney said during an interview.

“(But) we’re getting at the moment a little less of a positive uplift from higher oil prices than we would normally. And we’re getting that drag on consumption from higher gas prices.”

Ontario drivers paid an average of $1.36 a litre for regular gas this week, and with summer driving season approaching, some analysts anticipate the number could peak at $1.60.

That takes money out of consumer pockets, leaving less disposable income for activities such as travel or purchases that help spur economic growth, said Carney.

The corollary is that Canadian producers in the West are also not realizing as much as would be expected because Canada imports more expensive North Sea oil while selling at the lower-priced West Texas Intermediate (WTI) rate and often below.

WTI was hovering at just over US$101 on Thursday. Brent crude from the North Sea is over US$122.

In March, the average differential between the two was almost US$25.

Refineries in Canada on average use about equal proportions of WTI and Brent, a former Bank of Canada study showed, and that mix is reflected in the price of gas at the pump.

Carney said bank economists are crunching the numbers and will issue a calculation of the net impact of global oil on the Canadian economy in the next quarterly monetary policy report later this month.

It’s unclear at what point the net benefit to Canada as an oil exporter flips into a net loss due to the drag of prices on consumer spending and business input costs.

As well, the Canadian dollar gets a boost from strong oil, making exports to the U.S. and other countries less competitive.

The longer prices stay at elevated levels, however, the more damage the economy suffers, Carney said.

“The issue is persistence on the consumption side, but the other issue is, ‘OK, what are we actually realizing as the net oil price in Canada,’ ” he explained.

CIBC economist Benjamin Tal said one dynamic is clear — the high price of oil is exacerbating the economic divide between East and West.

“It works to widen the gap between the West and the rest of the country in a very significant way,” he said. “Because Ontario is like the U.S., it is a consumer of oil.”

The latest unemployment report from Statistics Canada drives home the point. Despite surprisingly strong job creation in March, Ontario and Quebec still reported unemployment rates of 7.4 and 7.9 per cent respectively for the month, while the rate was 4.8 in Saskatchewan and 5.3 in Alberta.

Carney said better infrastructure — pipelines to more efficiently get Alberta crude to markets whether in the U.S. or Asia — could boost what producers obtain for exports, but noted that is a long-term issue.

Overall, the governor said he was more upbeat about the economy than he was in January, the last time the central bank issued a comprehensive analysis of conditions. He said he was encouraged both by the pick-up in job creation south of the border, and actions in Europe to contain the debt crisis.

“As a whole what we see in Canada is the underlying conditions are a bit firmer than we had anticipated in January,” he said.

Just Posted

Snowfall warning issued for Central Alberta

Environment Canada issued a snowfall warning for Central Alberta Friday afternoon. Warning… Continue reading

POLL: Most people don’t want cell phones in the classroom

Sixty-six per cent of Advocate readers who responded to an on-line poll… Continue reading

Grassroots movement to clean up Red Deer is gaining momentum

Homeless people need more attention than shopping carts, says former councillor Cindy Jefferies

Lacombe cracks down on messy properties

Crackdown to target longstanding offenders

Red Deer citizens restrain suspect motorist who caused several collisions and fled

Police thank the public, but caution about getting into ‘harm’s way’

Updated: Grey Cup in Red Deer to raise funds for military families

Money raised will go to the Military Family Resource Centre and be used locally

Mistrial denied in Calgary murder trial over jury’s visit to hotel Denny’s

CALGARY — A Calgary judge has denied a request for a mistrial… Continue reading

Former Canadian astronaut says space shuttle is a vehicle of hope

OTTAWA — Sending messages of hope from space is a big part… Continue reading

Canada requests trade panel on uncoated groundwood paper ruling by U.S.

OTTAWA — Canada has requested a NAFTA trade panel review a U.S.… Continue reading

B.C. premier apologizes for removal of 1950s totem pole at Canada-U.S. border

SURREY, B.C. — Three First Nations in British Columbia gathered today to… Continue reading

Tail with a happy ending: Dog rescued from fighting ring, ready for police work

Dallas’s ear-to-ear grin and bright brown eyes seem to sparkle with joy.… Continue reading

Liberal leader doubles down on notion that $75 weekly grocery bill is possible

MONTREAL — One day after being ridiculed for saying it was possible… Continue reading

Jury resumes deliberating man’s guilt in Calgary mother of four’s death

CALGARY — Jurors are continuing to deliberate the guilt of a man… Continue reading

Ontario finance minister projects $15B deficit for province

TORONTO — Ontario’s finance minister said the province will have to make… Continue reading

Most Read