Significant rate catalysts often come out of left field. Case in point: collapsing Canadian oil prices.
Its thickness, inferior quality and delivery challenges mean Canadian oil always trades at a discount to WTI (roughly $15 cheaper on average over the long term, says BNN), but this is cray-cray.
Alberta’s oil regulator (AER) projected a $13.50 per barrel average discount from WTI in 2018. We’re at $52 as this is being written.
Why You Should Care
Canada’s largest single export is oil. The industry related to WCS oil contributed $79 billion to Canada’s economy in 2017 (Source: AER). That’s over 5% of GDP.
An oil price meltdown means lost jobs, lost tax revenue, lost government royalties and so on.
This is no joke. Sinking WCS could shave a whopping 0.7 per cent off our national GDP (or more), according to recent estimates by the Fraser Institute.
Keep in mind, Canadian oil prices are highly volatile. This spread will likely rebound in the not-too-distant future, say analysts.
Moreover, WCS is just one input affecting interest rates. But it’s a meaningful input when the moves are extreme. For those reasons, this crash in WCS could eliminate one or more Bank of Canada rate hikes. And that’s variable-rate friendly.