How Much Will the Ontario Economy Save With Cheaper Gas?

I've blogged in the past about how much Ontario pays for gasoline. Ontario produces very little oil itself, so almost all gasoline is imported.  Obviously with oil prices cratering, the amount Ontario overall pays for gasoline will go drastically down.

This Bloomberg article says that Canadian drivers will save $30 per week (around $1500 per year). That seems high to me. Assuming 5,000,000 million drivers in Ontario that means $7..5 billion is being saved (and that's in after tax dollars) per year with the cheaper prices.

A lot is being saved in any case. Ontario will lose out on some taxes as their 8% portion of the HST will decline with cheaper gas. However this money could well be spent on other items that HST is charged on so it is probably a wash for the government. Likely anyone selling goods and services that are purchased with disposable income are going to have more sales. Or Ontarians will put it towards debt reduction (which I doubt).

One issue for Ontario is that the banks headquartered here aren't likely to do well with lower oil prices and that means lower corporate income tax for Ontario, where corporate tax receipts have already been under expectations recently. The stock market is also crashing, with the TSX not much up year to date. That means less in taxes for capital gains. I'm not sure whether the big savings in gas counteracts these effects for the Ontario economy, although the lower dollar has to help exports and hurt imports (including tourism dollars spent in the US).

Ontario, the Iraq Situation, Gas Prices and the Economy

Events are fluid right now in Iraq with ISIS in control of a large swathe of Iraq and not far outside of Baghdad. They're still relatively far from the Southern oil fields in Shia areas, but Iraq produces over 3 million dollars per day. Foreign oil companies are probably starting to move out personal who have been key in boosting Iraqi production (the US has starting moving out their own personal from Bahgdad) and this could have an affect on production by itself.

Clearly if over 3 million barrels of Iraqi crude go off-line, that's good for oil prices. T. Boone Pickens is predicting oil would go to between $150 to $200 a barrel if Iraq goes off-line (although T. can be a bit of a chicken little at times).

So Ontario. Obviously Ontario produces hardly any oil so higher oil prices are just taking dollars out of the provincial economy. Alberta produces a lot of oil obviously, so high prices are good for them and will keep the Canadian dollar propped up, which is bad for Ontario.

Watch for oil prices tomorrow. I'm assuming that in the end, not much will happen to Iraqi production, but prices will continue to go up. High enough to impact Ontario's economy? Ontarians are used to higher oil prices, but gas reaching $1.60 in Southern Ontario is going to be a big hit to an already weak economy.

West Texas Oil Price Over $106, What Does That Mean For Ontario?

Today, mostly due to rebellion in Iraq, the price per barrel of West Texas crude went over $106 and Brent went over $112. What's that mean for Ontario?

Obviously it isn't good. Ontario pretty much imports all its oil and gasoline (there's a bit of production in Southwest Ontario, but that's not material). Gasoline prices per litre have been high already lately anyways and this doesn't help. Ontario is a car based culture, except for downtown Toronto, so any increases in gas prices are going to come from an already burdened consumer. That money has to come from somewhere and it is going to come from disposable income.

Ontario's manufacturing industry has already been decimated and isn't bringing in the export income it used too. Every extra dollar spent on gasoline contributes to Ontario's trade deficit and that's going to hurt GDP in the second quarter. I've already been predicting that due to the US first quarter's GDP contraction, Ontario's is going to be poor and possibly negative. The US second quarter GDP has been predicted to bounce back strongly and should help Ontario's second quarter GDP, however high gasoline prices will have an impact. We'll see.

One aspect of higher gasoline prices is that HST is now charged, so the Ontario government gets 8% of retail gas prices, which raises with increased prices unlike the excise tax. Gasoline consumption is somewhat inelastic so higher prices shouldn't change consumption that much in the short term so there should be more HST revenues. I really need to look up total gasoline consumption in Ontario to see just how much HST revenue there is.

Gasoline consumption is somewhat inelastic, however high gas prices long term is going to drive down miles driven. I've seen statistics for miles driven overall in the US per year, I'd love to see it for Ontario.