Low oil prices should be helping to make Stephen Pearce the happiest guy in the Lower Mainland.
In 2014, the Tourism Vancouver vice-president watched Greater Vancouver attract the largest number of overnight visitors in its history.
This year, the region will likely draw even more overnight guests, thanks to a growing number of visitors from key markets such as China, Mexico, and the U.S., Pearce says.
The loonie’s tumble in the wake of collapsing oil prices is good for B.C.’s tourism industry. It makes Canada more attractive to American tourists and encourages Canadians to travel at home, Pearce says.
“It gives us a stronger value proposition,” he adds.
But lower oil prices have left Pearce sliding on a slick of mixed emotions. He’s wary of how long fuel costs will stay low, and refuses to factor them into his visitor projections for 2015.
He also wonders about the impact of low oil and gasoline prices on the larger Canadian economy. Pearce worries that Canadians may pay a price down the road for the relief they’re getting at the pump today if governments’ ability to provide services is undermined.
“Lower gasoline prices have the potential for reducing government revenue. There may be repercussions,” Pearce says. “I wish I had a fix on this.”
Low oil prices are turning some Canadians into winners, others into losers. The losers, like the people in oil-producing Alberta, are braced for short-term pain, certain that it’s only a matter of time until prices recover and prosperity returns.
The winners, like B.C.’s exporting industries, are cautious about the windfall, mindful their gain is someone else’s pain, mindful their petro-blessings will soon end if and when oil prices rally.
They may be among the most anxious winners and the least tormented losers you’ve ever seen.
The advantages of cheap oil are so jumbled with the disadvantages that experts are hard-pressed to identify who will benefit and who will lose out. The glut in global oil supply that triggered collapsing prices has created a breed of economic mutts.
'MORE DISPOSABLE INCOME'
Canadian consumers should be the clearest of victors in the oil-price sweepstakes, experts say.
World oil prices have skidded almost 50 per cent since June. And while gasoline prices haven’t tumbled nearly as far, lower pump prices are leaving a lot more money in consumers’ pockets.
“It’s kind of like a tax cut,” says Business Council of B.C. chief economist Ken Peacock. “When you get a significant drop in price, it means more disposable income for households.”
Sal Guatieri, senior economist with BMO Capital Markets, says the drop in gas prices from June through December saved Canadian households almost $1,000 each. This amounts to national savings to Canadians of about $13 billion.
Consumers’ buying power will get another boost as recent wage gains outpace inflation, thanks to lower gas prices chipping away at underlying costs of living, BMO says.
TD Bank, which expects oil prices to stabilize at $60-$65 US a barrel in the first half of 2015 — down from a high of $115 US a barrel in June 2014 — foresees savings from cheaper gas this year of a more modest $300 per household.
But Scott Hannah, president of the non-profit Credit Counselling Society, fears that many Canadians will miss the opportunity created by low pump prices to strengthen their finances.
Most households will simply pour their gas-pump savings into “a miscellaneous spending void” instead of contributing to an RRSP, paying down debt or adding to a rainy-day fund, Hannah says.
“Most people will not take this lower cost of fuel consumption and do something meaningful with it,” Hannah says. “It is frustrating. We aren’t saving enough money.”
Even worse, some people will use their gas savings to justify adding another fixed expense such as an upgraded home cable package.
“Who knows how long this is going to last?” Hannah says. “There’s more to worry about in this situation than there is to be positive about.”
Canadians heading to the warmth of the U.S. sun belt this winter will pay more, thanks to the stronger U.S. dollar, Guatieri says.
As well, airlines have not moved to cut fares to reflect their cheaper fuel costs. The carriers’ defence is that their fuel is priced in U.S. dollars, which takes a bite from the savings from lower fuel costs. They also say they’re still working through more expensive fuel that was purchased months ahead.
WINDFALL FOR MOST RETAILERS
B.C. retailers will likely enjoy a winning streak as their customers reallocate the money they’ve saved at the pumps, says Bryan Yu, B.C. senior economist with Central 1 Credit Union.
Consumers will likely target smaller items such as restaurant meals and clothing, Yu says.
The weaker loonie will also make Canadian prices more competitive with those in stores across the border, Yu says.
“It means consumers will think twice about going cross-border shopping or even buying online if they’re charged in U.S dollars,” he says.
The same easing of fuel costs that consumers enjoy will buoy retailers, as their cost for shipping declines, Yu says.
On the losing side for merchants, the costs of imported products priced in U.S. dollars will rise. And woe betide the Canadian retailer who tries to pass all of those increase along to consumers, Guatieri says.
“They will have to ... absorb the price increases if they want to retain market share,” Guatieri says. “If Canadian retailers boost their prices faster than Americans, the price gap will open up again and Canadians will just shop across the border.”
RESOURCES GET COMPETITIVE
B.C., which is a net importer of oil, will be one of the biggest provincial winners in a period of low-oil prices, economists say. That’s because a low Canadian buck makes the province’s exports become more competitive in a growing U.S. economy.
Cheaper oil also cuts production costs of exporters that are heavy energy users such as mining, Guatieri says.
The cheap loonie also helps B.C.’s forest companies. Consulting firm PWC Canada says that a one-cent drop in the value of the Canadian dollar generates an extra $450 million in revenue for Canada’s forest firms.
Rick Jeffery, president of Coast Forest Products Association, says cheaper fuel and lower dollar have the potential to stabilize employment along the coast. After years of downsizing, the coast currently has 12,000-15,000 direct jobs. But the industry would prefer to see strong global demand for wood products than cheap oil and a weak loonie, Jeffery says.
“We’re not sitting on the sidelines cheering for a weak currency,” Jeffery says. “We’d like to see a strong U.S. economy and strong global economy that stimulates demand.”
Besides, the loonie is not the only currency giving producers a boost in the lumber game. The Russian ruble has declined far more against the U.S. dollar than the loonie has.
A forest industry source who asked to be unnamed says B.C. producers are anxiously watching the Chinese market to see if cheaper Russian lumber steals market share there from B.C.
FINANCIAL SERVICES JOBS CUT
The improvement in B.C.’s export fortunes courtesy of oil and the loonie is good news for the province’s jobseekers. Employment in B.C. should grow 1.5 per cent next year — the strongest increase in the country, TD Bank says.
But there are clouds hanging over this supposedly sunny side of the economy. Marin Katusa, an investment strategist with Casey Research and a hedge-fund manager, says employment in Vancouver’s financial services sector had already taken a beating from the mining industry’s troubles. Those losses will be intensified by capital spending cuts in Alberta’s oilpatch, Katusa says.
“You’re looking at the financing sector, the engineering side, the brokerage side,” Katusa says. “People don’t realize how many people who had good jobs in our resource sector three years ago have been laid off.”
Observers say the oilpatch’s challenges may mean less job security and fewer openings for job-hunters from B.C. if oil prices are slow to recover from their fall.
Hannah suspects a lot of B.C. residents with jobs tied to Alberta’s oilsands — whether they’re direct jobs or indirect ones in supply and services — are nervous as energy companies scale back spending plans.
“This is speculative, but I would not think it’s going to impact people too much who are already working there,” Peacock says. “It’s more of the potential — to the extent that there are potential jobs, there could be fewer opportunities for British Columbians.”
Peacock says low oil prices may also prompt companies behind proposed LNG plants in B.C. to postpone or defer investment decisions.
Weaker oil prices should, in theory, be making Jim Storie dance in the streets. Storie is president of Vancouver Trolley Co. — and transportation outfits like his are among the most obvious beneficiaries of reduced fuel costs.
Storie is cautiously enjoying oil prices as long as they stay low — fuel, after all, is one of Vancouver Trolley’s three biggest costs. But he suspects that when the oil price party ends, it will end quickly.
“We have certainly seen the price go up more quickly than it has come down,” Storie says. “We just hope that we see prices stabilize at lower levels and that we can continue to benefit.”
