How Oil Prices Affect The Economy

                                                        

     We all use petroleum products in our daily lives in one form or another. This consists of things such as products made out of plastic, gasoline for your vehicle, heating oil or natural gas to heat your place of residence,

     Crude oil prices of been mentioned more frequently as of late due to the fall in oil prices latterly.
As indicated in the following 1 hour chart, the price of a barrel of crude oil for WTI crude oil has falling a lot.

Click to expand

    This chart shows the price of oil fell approximately $7.00 per barrel over a 15 day period.  The price fell to a low of around $47.10 per barrel before heading upwards to around $48.50 at the time of the screen capture.  This massive decrease is due to oversupply in the market as the United States has increased their production, although OPEC has cut production.

    A commercial vessel carrying oil has been hijacked in the past views days off the coast of Somalia.  This has happen in the past couple of days, so this event is likely what has caused the upward movement for the price per barrel after hitting a low of approximately $47.10.

     In the past week, Royal Dutch Shell sold out of their oil sands assets in northern Alberta.  The buyer of these assets was Canadian Natural Resources Ltd. The value of this transaction is approximately 8.5 billion dollars.

      As of the previous week, the utilization of drilling rigs is down across the 4 provinces stretching from BC to Manitoba.  Most of the drillings rights are located in Alberta, which is currently at 35% utilization.  The Canadian Association of Oilfield Drilling Contractors states that each operating rig corresponds to approximately 135 jobs in the communities. With the price of oil, companies are very hesitant to hire extra staff or even to operate at all.  This has effected the lives of lots of people in western Canada.  Also, the people from across the country are not able to fly in or out of the Prairies, which means less money circulating in the eastern provinces. 

     The optimism in the western Canadian oil patch has subsided. This will keep investors and potential oil patch workers returning to the industry.  The oil patch affects the western Canadian provinces, with the greatest impact felt in Alberta.  When the price of oil remains low, the amount of oil patch workers is reduced. This results in hotels, restaurants, and tourist destinations to cut back on staff.

    I had investments in the oil industry.  Enerplus, is an oil and gas producer with assets in the United States and Canada.  Enerplus (Ticker Symbol ERF) trades on both the Toronto Stock Exchange and NYSE.  Enbridge, is an energy supplier that has assets in both Canada and United States. Enbridge (ENB) transports energy through their pipelines, solar panels, wind turbines etc.  ENB trades on both sides of the border.

EDIT:  A major component of the oilfield is oilfield service companies.  These companies service the entire oilfield in different types of services and processes required when drilling oil. A previous company I worked for has closed down during the last few months after layoffs over a 18 month span. The company made parts for the oilfield.  I am unable to name the company that I work for, due to privacy issues.

Disclosure:  I do not own shares in Royal Dutch Shell or Canadian Natural Resources Ltd.  I   have never owned shares in either of these companies.

Disclosure: Long  ERF and ENB

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.