The top administrator at the Bank of Canada last week said high oil prices were good for the national economy. Crude oil prices were mixed in early trading this week as North Sea oil production declined because of maintenance. Operators in the Gulf of Mexico, meanwhile, moved slowly back to work following Hurricane Isaac. Against a backdrop of calls for emergency economic relief, however, the administration of Canadian Prime Minister Stephen Harper appears optimistic about the country's oil-driven potential.
Brent crude oil prices moved close to $115 in trading Monday as North Sea production declined because of maintenance. About 14 percent of the oil output from the Gulf of Mexico remains shut in as operators continue their slow march back to work following Hurricane Isaac, a Category 1 storm that struck Louisiana in late August.
Crude oil prices have increased at a relatively steady pace since June. Brent prices have climbed more than 25 percent since then, prompting concerns from the Saudi oil minister, Ali al-Naimi. He said Monday the price of oil was "simply not supported by market fundamentals."
Bank of Canada Gov. Mark Carney, however, said higher energy prices were good for the national economy and no action would be taken to get in the way of increases in the value of the Canadian dollar. The Canadian dollar has added nearly 3 percent to its value since Aug. 1 when compared with the U.S. dollar.
"Most fundamentally, higher commodity prices are unambiguously good for Canada," he said.
He dismissed claims that higher oil prices, coupled with high currency values, could lead to declines in the country's manufacturing sector. This logic, he said, would lead to the shut down of oil sands production, thus forcing the country to "abandon our resource wealth."
Canada ranks third in the world in terms of oil reserves. Its 175.2 billion barrels represent 11 percent of the world's total reserves, just behind Venezuela and Saudi Arabia respectively. U.S. politicking and environmental concerns over the Keystone XL pipeline, planned for Canadian crude, in part prompted the Canadian government of Prime Minister Stephen Harper to look to Asian markets for a diversified consumer base. Two planned pipelines alone – Keystone XL and Northern Gateway – represent about $14 billion in Canadian infrastructure.
Most of Canada's oil helps feed the U.S. economy. Without major projects like Northern Gateway, that's likely to remain the case. Harper travelled to Beijing in February in order to encourage more foreign interest in his country's petroleum economy. Since then, the government has started a review of a $15.1 billion takeover bid for Canadian oil company Nexen Inc. by China National Offshore Oil Corp. With a growing consumer base, and higher oil prices to fund its ambitions, Canadian Natural Resources Minister Joe Oliver said his country was keen to expand even further.
"We are welcoming and our regulatory system does not discriminate against foreign companies once they arrive. So Canada is a destination for a lot of foreign capital," he said. "We want to continue to make it that way."
By. Daniel J. Graeber of Oilprice.com