Oil Back on the Rise

As the Economist noted yesterday, oil prices are once again on the rise, buoyed by increasing evidence of economic recovery and a weakening U.S. dollar. Their assessment of this is somewhat gloomy.

Yet while this is not good news for developing economies or for consumers, it is good news in several ways, particularly in Canada. First, prices are once again approaching the point where further tar sands development becomes profitable at the same time costs are falling. A report released yesterday by UBS Securities suggests that as oil approaches $70, new projects are becoming viable once again as costs for such projects have fallen from approximately $100 to $60 per barrel.

This is very good news for Canada. At a time when its manufacturing base is being decimated, oil sands projects provide something of an offset in both employment and tax revenues. The problem that remains, however, is the environmental impact of the oil sands and the fact that the U.S. , the primary market for this oil, is beginning to notice and express concern.