Friday, January 16, 2009

Energy Export Cliff Diving?

During oil's run to $150, Canada enjoyed enormous receipts from energy product exports. These receipts reached about $35 billion in Q2 and Q3 2008 and since Canada is a net exporter of energy, energy receipts greatly helped our overall trade surplus.

So what happens now that oil has fallen to $40? A (very) simple model of the elasticity of energy exports with respect to a one quarter lag of the price of crude oil (I know we export more than oil, but I already told you the model was simple) suggests that energy exports are about to fall off a cliff.

Look out below!


Nick Rowe said...

Does the red dotted line show the predicted volume of oil exports, or the predicted value of that volume?

If volume, then what we need is value, and it would be (wouldn't it?) easy to calculate value from volume. But then the resulting predictions of value wouldn't match the actual value very well (I think).

Shock Minus Control said...

The lines are value - from statscan's balance of payments Q3:

Shock Minus Control said...

I would guess that exports may fall both in value due to price and perhaps in volume due to lower demand in the United States.

Nick Rowe said...

OK. Both lines are value (one predicted, and one actual). That makes sense. Thanks.