In the Canadian province of Alberta, where much of the oil now flooding North America originates, energy companies cut more than 10,000 part-time contractor jobs last month. More large-scale layoffs are expected in the months to come as declining crude prices reduce the profits that companies expect from working the region’s vast tar sands.
The Bank of Canada warned on Wednesday that weaker oil prices could leave parts of the national economy, including housing, exposed to the ups and downs of the volatile global oil market.
Norway, much of whose growth in recent decades has been been fueled by North Sea oil production, is also reacting to sinking crude prices. The company’s central bank surprised financial markets on Thursday by cutting interest rates in a move to shore up economic growth.
“Activity in the petroleum industry is softening, and the sharp fall in oil prices is likely to amplify this tendency,” the Norges Bank said in a statement.” This will have spillover effects on the wider economy, and unemployment may edge up ahead.”
Such concerns may be mild compared to the damage lower oil prices are inflicting on nations whose economies depend almost entirely on oil production and export.
Venezuela is a prime example. The OPEC member’s oil revenues make up about 96 percent of its export earnings. According to the World Bank’s data on “oil rents”–the difference in value between crude oil production at world prices and total costs of production–oil makes up nearly 27 percent of Venezuela’s GDP.
The more than 40 percent plunge in global oil prices that began in June is a further blow to Venezuela’s already weakened economy, which has been hurt by skyrocketing inflation and widespread shortages of basic consumer goods.
Another OPEC nation, Nigeria, relies on oil for over 15 percent of its economy. Nigerian news site ThisDayLive says falling crude prices have cost the nation $11.5 billion in lost revenue between June and last month.
In terms of the oil giants, nearly half of Saudi Arabia’s GDP and nearly one-seventh of Russia’s total economy come from oil. But as analyst Brad McMillan of Commonwealth Financial Network points out, Russia is in a much more vulnerable economic position.
“Saudi Arabia has far lower marginal production costs, so it can be profitable at much lower prices than Russia can,” he said in a client note. “The Saudis may be making less, but they’re still making money. Saudi Arabia also has a deep reservoir of cash to draw on, which can support lower prices. Finally, it can dial up production — cheaply — to increase revenue, which Russia can’t do.”
McMillan adds that, since oil production makes up less than 1 percent of U.S. GDP, “the downside of lower oil prices isn’t the economic damage it would do here, but what it could do to countries we’re exposed to.”
Analysts expect lower oil and gas prices to persist for the near future, which has added to speculation about OPEC’s future. Late last month, the oil cartel decided to maintain its current oil production levels despite the economic toll falling prices are having on its members.
Some observers also say OPEC’s role in international oil markets is fundamentally changing.
“Before, the OPEC countries could just look at what’s in their best interest,” Ron Rizzuto, professor of finance at the University of Denver’s Daniels College of Business, told CBS MoneyWatch. “And if that was higher production, higher prices, they did what suited them.”
“Now they need to pay attention to other supply [sources] out there,” he added. “So consequently they can’t just dictate it the way they were able to in the past. Like any business where it’s competitive, you have to pay attention to what’s going on in the entire ecosystem.”