by Jordan Finkelstein
The Canadian economy is in turmoil over oil and it appears the crude controversy isn’t going anywhere anytime soon.
Abdullah bin Abdulaziz Al Saud, Saudi Arabia’s late king, died on Friday morning after battling a short illness. He was 90 years old. Abdullah has been succeeded by his half-brother Salman.
According to the U.S. Energy Information Administration (EIA), Saudi Arabia claims to have the second largest proven oil reserves in the world, which amounts to 16 per cent of all the oil reserves on Earth. The country is also the world’s largest exporter of liquid petroleum. Canada and the U.S. rely heavily on these exports for things like gasoline and motor oil.
King Salman has vowed to maintain the same policies of his predecessors, specifically King Abdullah, who held his position in power for nearly 20 years. While in office, King Abdullah increased Saudi Arabian oil production and exports, specifically for use in Europe and Western nations. As a result, King Abdullah oversaw the Saudi economy expanding fivefold during his tenure.
“We will continue adhering to the correct policies which Saudi Arabia has followed since its establishment,” said Salman in his speech on Friday morning, which aired on state-run Saudi television.
Since King Salman took power on Friday, U.S. benchmark crude oil futures rose more than two per cent, making the cost of a barrel $47.76. This came after the EIA reported that through Jan.9 U.S. oil production rose to 9.19 million barrels a day, the most in U.S. weekly statistics since 1983.
Experts have still said Saudi Arabia’s change of power will lead to uncertainty over future oil prices and production levels in western nations. The Canadian economy has been heavily effected by the drop in oil prices.
“Our economy gets hit hard because many Canadian industries rely on producing and using oil,” said Joseph Steinberg, an economics professor at University of Toronto. “For example, the tar sands in Alberta cost a lot of money to function and extract oil. If global prices are down, there is less demand and therefore less reason to keep producing. That leads to other related jobs getting cut, and each industry being affected because they rely on each other.”
The global oil market experienced some of the biggest price shifts in history over the past year, meaning King Salman’s unknown agenda has led to even more concerns for economists.
“I don’t believe Saudi Arabia will produce less oil because of the new king,” said Steinberg. “The country is now competing with Iraq, which is also producing record numbers of oil. If Saudi Arabia wants to maintain its status in the industry, it needs to keep producing oil even when profits are low.”
Prior to King Abdullah’s death, the EIA published a report showing U.S. Oil prices fell almost 50 per cent in 2014. The report also showed U.S crude inventories rose 12 per cent above the five-year average for this time of year. One day later, King Abdullah passed and oil prices rose again.