Are oil prices too low?

Oil prices critically affect the North American economy, but what if they went down?

“We’d be happy with $85-to-$90 a barrel,” says Craig Porter, a resource fund manager from Front Street Capital and manager of the Renaissance Global Resources Fund.

“A month ago, the Saudis, the largest players in OPEC, said they wanted to get Brent Oil down to about $100 a barrel.” At the time it was about $120.

By increasing production, they succeeded, which impacted Canada positively.

“Companies can still explore; they’re still quite profitable,” says Porter. “We don’t want oil going up to $112 or $115, because that really slows down economic growth.”

However, if the price dips too steeply, growth can stop. “When you start getting down into the $60 and $55 range, all of a sudden the oil-sands projects no longer make economic sense; so projects don’t get built.”

Fuel prices must stay within a narrow band to remain positive forces in the North American economy.

“Low natural-gas prices are good for the U.S. economy because we’re seeing chemical and manufacturing companies start to bring business back to the U.S. Natural gas trades at about one-sixth of what it trades in Asia right now,” says Porter.

The large supply of natural gas being produced in North America is stopping investors from being too bullish.

Read: Expect better returns from the oilpatch

As for oil, lower per-barrel prices mean consumers are grateful for the ease in prices at the pump.

The Canadian economy is set up to handle $100-a-barrel oil. “There has been some cooperation between consumers and producers of oil,” says Porter. “This is a price where global capacity is not hurt by high energy prices and that allows them to maintain their budgets.”