Someone the other day was quoted as saying “$25 is the new $200” — that is, the new outlier target for oil prices is now $25/barrel. With the price per barrel at $40.81 and continuing to fall, it doesn’t seem like a bold call. The tumbling price of crude has put numerous projects in the oil sands — large construction projects such as upgraders — on indefinite hold, dimming the growth prospects of Alberta, and Canada. And oil wouldn’t have to fall much further from its current level to wreak serious havoc on even existing production:

In a report to clients yesterday, Merrill Lynch & Co. estimated almost 800,000 barrels a day of crude — almost 30% of Canadian total output — could go “off line” if oil prices dip below US$38 a barrel, the break-even price for some projects. Another 800,000 b/d could be shut in if oil falls below US$30.

Commodity prices have fallen off a cliff. Canadians have been assured by their ideologically clueless government that Canada will face a milder, “technical” recession rather than the deep and painful slowdown in the United States. I think the opposite scenario is equally realistic. With a Canadian economy that has become increasingly — since the (once-)high dollar and concomitant neglect by an Alberta-focused government together shrank the productive sectors of the economy — dependent on oil, gas, and mineral extraction, how is it possible that Canada would not, in fact, be harder hit if one-third of Canadian oil production just stops?