2015 was a dismal year for oil prices, the loonie, and Canadian stock markets

On the final trading day of the 2015 on Thursday, the S&P/TSX composite in Toronto was at 13,009, a loss of 132 on the day and off 11 percent from a year ago. This is the worst performance since 2011.

The TSX peaked on April 15 at 15,524 but since then has dropped 16 percent. The Canadian economy has struggled with output flat or even down some months. In the U.S. stock markets performed better than in Canada but turned in a mixed performance. The Dow Jones dropped 2.2 percent over the year, and the S&P 500 less than one percent. The Nasdaq actually gained 5.7 percent.

Oil has suffered an even more dramatic decline in price. A barrel of West Texas intermediate dropped by 38.6 percent during 2015. This is the worst performance since the financial crisis back in 2009. At the close, the price was up marginally at $37.05. For some producers, oil prices are already below the "marginal cost of supply." With producing giants such as Saudi Arabia refusing to cut back production, higher-cost producers will cease expanding production and in some cases even stop production. The situation is ripe for takeovers by larger companies with cash to buy companies struggling to survive and starved for cash. While no one knows how low oil prices could go, Goldman Sachs made headlines by suggesting last week that WTI could go as low as $20 a barrel. Many analysts see this as an overly pessimistic estimate and see the price as close to a bottom now with demand beginning to increase. A year and a half ago oil was priced at over a $100 a barrel. Oil and gas revenue for 2015 was expected to be about $91 billion about 40 percent below 2014.

In May of 2015 oil surplus hit two million barrels each day. In August oil storage reached a level not seen in 80 years. The Canadian Association of Petroleum Producers(CAPP) reported that there had been layoffs of 35,000 in Alberta.

Suncor CEO Steve Williams said:"There is not a sudden moment when we realized prices were going to be lower for longer. There is consensus now that prices are going to be low and for much longer than people anticipated."Some auction houses in Alberta are seeing their business boom as companies sell off equipment to keep cash flowing.

Scotiabank Economics has lowered its price forecast for oil prices next year after the recent OPEC meeting that failed to announce any production cut. The prediction is for WTI to be from $40 to $45 a barrel for 2016 and only $45 to $50 for 2017. Scotiabank said that in the short term WTI could fall as low as $30 dollars a barrel. Common forecasts put the price as flat until rising demand and falling output will raise prices. A long term forecast by the International Energy Agency puts the price of oil back at about $80 a barrel by 2020.

The loonie dives in tandem with oil prices as it dropped 16 percent relative to the US dollar over the year. This is close to the 18.6 percent the loonie lost during 2008. On Thursday the loonie was trading at 72.34 cents on the U.S. dollar. While the lower loonie may help some of our export businesses especially to US markets, it has resulted in higher prices for goods imported from the US such as fresh fruit and vegetables. Canadian tourists and snowbirds will find it will cost them more Canadian dollars on their journeys.

One area where prices are on the rise is in the housing market, especially "hot" areas such as Vancouver and Toronto. Also rising are Canadian household debt levels. As interest rates remain low, Canadians are often enticed into buying while they are still able to afford monthly payments. It is quite possible that 2016 could see a property value crash, especially in overheated markets. In areas hit by low oil prices some realtors are already closing up shop.

In 2016, the Canadian Real Estate Association forecast home prices to increase by 1.4 percent compared to the 7 percent in 2015. However, larger price increases are expected to continue in areas such as Vancouver and Toronto. One factor is that the low loonie makes these properties attractive to foreign buyers. Job growth has been relatively strong in these cities and demand for housing increases as workers migrate away from provinces such as Alberta. The inflow of immigrants will also increase demand.

Low interest rates may entice more Canadians to take on more debt, even though the ratio of household debt to income is now 164 percent compared to about 100 percent in the late 1990s. Over the past year household debt in Canada rose to $1.88 trillion. Mortgage debt rose by $74.7 billion or 5.9 percent. If jobs are lost or interest rates increase many households will find it impossible to cope with their debt loads. The enclosed video is from March of this year.