Higher global oil prices could begin affecting businesses and consumers across Saskatchewan if the increases continue, according to a University of Saskatchewan business professor.
Devan Mescall, a professor at the Edwards School of Business at the University of Saskatchewan, said rising prices are partly tied to concerns about potential disruptions in global supply.
“There’s sort of a risk premium, and then there is sort of the potential impact on sort of loss of supply,” Mescall said.
He noted that a large share of the world’s oil moves through key shipping routes, including the Strait of Hormuz, which can create uncertainty in global markets during periods of conflict.
“A large portion of the world’s oil, so roughly about 30 percent, is not able to get to market because it has to come through the Strait of Hormuz,” he said.
When global crude prices rise, the impact is usually felt quickly at the gas pump because fuel prices are tied closely to international markets.
“You know, even though we produce oil at the gas pumps, 50 percent of the price at the gas pumps is based on the world price of crude,” Mescall said.
Higher oil prices can create mixed economic effects in provinces such as Saskatchewan, which both consumes and produces oil.
Mescall said governments and energy producers can see financial benefits from higher oil prices, while consumers and businesses face higher costs.
“Our government, the budgets will have more revenue from resources, but there will be costs borne by both consumers and local businesses,” he said.
Businesses across the province could also begin adjusting prices if higher fuel costs remain in place for an extended period.
“If it appears that the conflict will extend longer, companies will probably update their prices to build in the elevated price of transportation,” Mescall said.
Those increases could eventually contribute to inflation beyond fuel prices.
“We could see an impact through inflation for more general costs than simply at the gas pump.” he said.
Communities such as Prince Albert may also see indirect impacts if fuel costs influence travel and consumer spending.
“If gas prices rise to a point that people are less likely to travel, that could impact restaurants and hotels and things in Prince Albert,” Mescall said.
Transportation companies may feel the pressure first because fuel is a major operating expense.
“As do I believe that those types of businesses would be impacted, as well as any businesses that rely on trucking companies or transportation companies,” he said.
If higher oil prices persist, Mescall said the cost of everyday goods could also rise.
“I believe that the price of most goods, and not just commodities, will rise if we see this as an extended event,” he said.
He added that rural and remote communities often feel the impact of higher fuel costs more strongly because residents typically rely more on driving.
“People have to drive further and drive more, and so gas takes up a larger portion of each of our family budgets when we live in more remote and rural areas,” he said.
arjun.pillai@paherald.sk.ca
