The price of a barrel of light crude oil has fallen from over $100 a barrel to less than $50 a barrel in the past six months. This drop was not predicted by any analyst that I know of and so I am quite suspect of any analyst who claims that they know where the price of oil is going to go from here. There are so many factors that influence the price of oil that I believe it is impossible to predict its price direction.

The impact on Alberta – the world’s shining oilsand producer star – will be significant, with the magnitude depending on how long the price of oil stays low. Because Canada is a net exporter of oil, Canada’s growth will suffer. The US, however, is a net importer of oil and so are expecting their economy to experience a net benefit from the falling price of oil.

As usual, the Canadian dollar has fallen right along with the price of oil. Because oil is traded in US dollars this has slightly offset some of the fall in the price of oil for Canadian exporters. For example, let’s say that oil drops 50%, but the Canadian dollar also drops 50% relative to the US dollar – Canadian exporters would be in the exact same economic position as before any change occurred. Unfortunately for Canadian oil exporters the Canadian dollar has NOT dropped 50% relative to the US dollar, but has dropped about 13% in the past six months, which is not insignificant. The falling value of the Canadian dollar relative to the US dollar is not ideal for anyone who is purchasing anything in US dollars, like US goods importers or Canadians travelling to the US, but is advantageous to those industries that are selling goods or services in US dollars, like oil exporters.

At some point in the future, oil related companies and their corresponding publicly traded stocks are going to be very attractive to purchase. However, until the price of oil settles – meaning reduced day to day volatility, I think it involves too much potential risk to add more oil related exposure to an investment portfolio. This may mean that a great opportunity is not taken advantage of, but I am OK to let some opportunities slip through my fingers if it means that I am still around (financially) to take advantage of other, less risky opportunities when they arise.

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