Oil Price Swings Are Manageable, Says Poloz

By Andrew Rickard | September 29 2015 11:46AM

Stephen Poloz, the Governor of the Bank of Canada, believes that the Canadian economy can deal with fluctuating natural resource prices.

Speaking in Calgary last week, Governor Poloz reminded the audience that volatility in the price of oil and other raw materials is due to basic principles of supply and demand. A country like Canada, which relies so heavily on natural resources, should not only be used to these price movements, but also recognize that they force businesses to think about the way they allocate capital and labour. "These decisions often lead to difficult adjustments, but they are necessary for maximizing our economy’s potential," says Poloz.

As for the factors behind the drop in oil prices, Poloz says the main reason is that technological advances in oil extraction have increased the supply of energy significantly. For example, Poloz notes that oil output in the United States reached 4.2 million barrels per day in 2014; this increase is roughly equivalent to all of the oil that Canada produces in a year. He also warns that these same technological advances make it difficult to predict future levels of supply and demand, not just in the energy sector but elsewhere.

In this kind of uncertain environment, Poloz suggests that it is important to remain flexible and able to adapt to changing circumstances. One thing the Bank of Canada can do, however, is to focus on keeping inflation low, stable, and predictable. "Doing so is the best contribution we can make to helping promote both strong, steady economic growth and the flexibility needed to ease those adjustments and help our resource-rich country thrive," he concluded.