Low Oil Prices are starting to Hurt
It has been a few months now since oil prices crashed and it doesn’t look like this will be a short lived downturn.
With Saudi Arabia firmly in control and sitting on vast reserves of oil and money, there is little that the rest of the world can do for now. If their goal is to crush the high cost producers in Canada and the United states, it is starting to work. In Canada the bad news has been flowing out at a steady rate now that fourth quarter financial results are being released by all the energy companies. The news has been bleak with companies reporting quarterly losses and announcing cutbacks in capital spending. Some have also taken this opportunity to layoff staff. Cenovus just released their results and they lost over 470 million dollars in the last quarter. The are also laying off over 15% of their workforce with most of them being contractors.
This is starting to affect the rest of the economy as well with the real estate market being the most high profile example. Listings are way up over this time last year and prices will start to come down. It is inevitable when you have so many listings and not enough buyers. Add in all the extremely negative stories from the national media such as the Globe and Mail who are writing stories about how Calgary’s real estate market is about to crash on almost a daily basis, and you could have a self fulfilling prophesy.
Now even industries that are not related to oil are jumping in with their own bad news. Just this morning Shaw announced they will be shifting 1000 jobs from their Calgary call centre to other cities in Canada. The employees will be given a choice as to whether or not they want to relocate or take a severance package. To their credit, at least they are not moving the jobs to overseas locations.
Of course no one is being hit harder by these low oil prices than the provincial government. Because they have mismanaged the province for so many years, they are extremely vulnerable to fluctuations in energy prices. The couldn’t even balance the budget at $100 oil, so it is no surprise that they will take a major hit when prices crash. Now Jim Prentice has stated they will cut 5% from the budget and this could come from anywhere. They say the cut is more like 9% when you add in the proposed increases that would have happened to account for population growth.
Well I say this is a good start, but they really need to drain the swamp and find out where all the bodies are buried. I am certain that after over 40 years in power, that there is a lot of corruption and wasteful spending. The 5% cut is a good start, but what needs to happen is for another party to take power and investigate what has happened for the last four decades. I am sure they could find a lot more savings without it impacting the frontline services that affect people’s lives on a daily basis. Why did they have over 80 vice presidents at Alberta Health Services? That is just one example of a bloated bureaucracy with massive salaries and even bigger severance packages when they quit. The chances that another party wins the next election are pretty much zero, since the Liberals and Wild Rose do not even have a leader, but we can still hope that it happens.
Anyway, even with all the bad news Calgary will survive and thrive – it always does.