OTTAWA (Reuters) - The slump in global oil prices will outlast the coronavirus outbreak and could hammer the Canadian economy for years to come, a top prospect to become the next Bank of Canada governor said.
The Organization of the Petroleum Exporting Countries, along with Russia and other producing nations - known as OPEC+ - agreed over the weekend to cut supply to try to support prices.
It came after oil prices slumped to an 18-year low in March because of slowing demand tied to the coronavirus outbreak and a surge in production following a dispute between Saudi Arabia and Russia.
“Even if the oil price war can be resolved, the collapse in global demand as a result of the pandemic suggests oil prices could be weaker for at least a few years,” said Tiff Macklem, a former senior deputy governor at the central bank and one of the names touted to be in the running to replace Governor Stephen Poloz, whose seven-year term ends in June.
“This oil price shock could certainly last longer than the virus,” Macklem told Reuters in recent comments.
Canada is the world’s fourth-largest oil producer, extracting some 4.9 million barrels per day in February. Western Canada Select heavy oil traded for a net price around $7 on Wednesday, not far from all-time lows, according to NE2 Canada Inc.
“Oil is our biggest export. ... It’s like, as Canadians, we all just got a big wage cut,” Macklem said.
The Bank of Canada said on Wednesday the coronavirus outbreak was set to trigger the biggest-ever near-term domestic slump, but expressed optimism the economy might be able to start reopening by June.
Poloz repeated that the central bank had slashed overnight interest rates by 150 basis points to 0.25% in recent weeks due to fallout from the coronavirus and the collapse in oil prices.
Macklem, 59, currently the dean at Toronto’s Rotman School of Management, was in the running seven years ago when Poloz, 64, was tapped for the job.
Another leading candidate is current Senior Deputy Governor Carolyn Wilkins.
Macklem noted that Prime Minister Justin Trudeau’s government had already signaled it would provide help to the energy sector.
He said the government had scaled up existing programs and quickly launched new ones for businesses and for all those who had lost jobs.
“Overall, I give the federal government pretty high marks.”
Reporting by Steve Scherer; Additional reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Peter Cooney