Canada’s oil industry is fighting for its life. In 2014, a barrel of crude sold for US$100-plus. This week, supply and demand got so distorted that people literally had to be paid to take a barrel of oil.
Oil’s decline is a mega-trend that will directly or indirectly affect Canadians for decades to come. It will even affect the price we pay for mortgages.
History has shown that variable and short-term mortgages outperform longer fixed terms. The dis-inflationary effect of oil’s slow demise could weigh on rates and reinforce that trend.
A SIDELINED BANK OF CANADA
There will be “no increase in [Bank of Canada] policy rates until at least 2023,” Mr. Brown projects. And a similar chorus echos throughout economist-land.
All else being equal, the economic drag from a contracting oil sector could exert downward pressure on rates for more than a decade, past the end of the COVID-19 crisis.
LOWER BORROWING COSTS
Calamity in the oil patch and general economic devastation are nothing to celebrate. They’re tragic. But if they’re going to happen, one should at least capitalize on one silver lining: lower borrowing costs.