Energy East Pipeline: Trudeau Vs. Coderre?
The Latest Update on the Energy East Pipeline Conundrum
– Momentum Public Relations –
Prime Minster Justin Trudeau and Montreal Mayor Denis Coderre met behind closed doors on January 26th, 2016 to discuss matters pertaining to the Energy East pipeline and several ongoing infrastructure projects. The Energy East pipeline, if implemented, would carry bitumen to refineries and ports in New Brunswick from Saskatchewan and Alberta. Given rising tensions between Western Canada and Quebec on such matters as of late it seemed fitting that the two leaders would get together to try to resolve their differences on the environmental and financial ramifications of the Energy East pipeline project.
For those unaware, Coderre was criticized by many due to his stance on the Energy East pipeline project. That is, Coderre and over 80 Montreal area communities were vehemently opposed to the construction of the pipeline, triggering a fervent backlash from the West.
Coderre felt that the possible environmental repercussions of the pipeline far outweighed the possible financial benefits that the province would reap from the project. That is, he felt that while the city of Montreal would earn roughly 2 million per year from the pipeline, an environmental disaster brought on by a monolithic oil spill could cost the city upwards of 10 billion dollars to cleanup.
Trudeau, on the other hand, plans to have various political, social, and environmental groups look at the pipeline’s possible social and environmental impact (i.e., greenhouse emissions), giving leaders from different respective groups, including Aboriginal people, a chance to have their voices heard before plans are undertaken.
Furthermore, Coderre spoke openly about finding a balance between sustainable and economical development. For instance, while he accepted the Line 9B pipeline reversal project because the organizers provided comprehensive environmental impact reports, Coderre claimed that there were no viable contingency plans for a global environmental disaster, and that caveats must be addressed before plans were allowed to go forward.
It should also be noted that, just hours prior to the meeting between Coderre and Trudeau, federal environment commissioner Julie Gelfand released an audit that found that the National Energy Board had fallen short of its promise to follow up on compliance issues as well as fail to implement pipeline approval protocols. That is, the National Energy Board had failed to ensure the proper operation of over 70,000 km of existing gas and oil pipelines; which were being maintained and operated by nearly 100 different enterprises.
Ms. Gelfand also stated that, “[She] found that the board’s tracking systems were outdated and inefficient”. In fact, of the 49 cases that were assessed in the audit nearly half (24) had vital documentation that were incomplete, inaccurate, or missing altogether.
As for Mr. Trudeau, he emerged from the meeting with the optimistic stance that Canadians across the map would come onboard of the proposed infrastructure project once the Liberal government had been given the opportunity to overhaul the anemic review process and demonstrate the viable economic growth that such a pipeline project would bring.
De facto, Ms. Gelfand’s report found that the pipelines that were regulated by the Federal government moved over 160 billion dollars worth of gas and oil to international and Canadian markets in 2014. The report also claimed that approving the proposed pipeline construction project, amongst others, would nearly double the existing pipeline capacity in the next 4 years while also investing nearly 25 billion dollars in project development initiatives.
In addition, the report stressed that the energy board would need to work harder to recruit and retain qualified experts; which would not be a daunting task due to the recent massive layoffs that have have hit the oil and gas industry in Canada due to plunging global oil prices.
In sum, while nothing has been finalized between Quebec and Western Canada regarding the proposed Energy East pipeline project, the Federal government has claimed that it will factor in the effects of greenhouse gas emissions to the project’s approval criteria. Moreover, many pundits- including National Resources Minister Jim Carr-have stressed that ongoing consultations must take place between board members and First Nations leaders in order for the public to get behind the impending pipeline projects. For more information on the ongoing debates involving the Energy East pipeline and associated projects please click here.
- Published in Blog, Business, Oil and Gas
The Sky is Falling – Or Maybe it Isn’t
The Sky is Falling – Or Maybe it Isn’t
Momentum Public Relations
In the famous children’s fable, the excitable “Chicken Little” runs around declaring that the sky is falling. This tale provokes a shared belief by other characters in the story that a disaster of epic proportions is imminent. The story, and the character, both have a rich history, one that goes back more than 20 centuries. The very memorable phrase that heralds pending doom has become a statement that is part of the idiom of our culture.
Crude oil prices have tanked! Is the sky falling? Are we about to experience the end of the world? Will this take down the Canadian economy? Will it shake the nations of the world to their core?
Let’s begin with some perspective and a reality check. The current price of oil is close to its 40-year average when adjustments for inflation are factored in. Perhaps we need to re-frame the issue and temper the concern. The data suggests that we may have returned to a well-calibrated price level after a temporary period of extraordinarily high prices. Is it possible that this is the new normal and the alarmist commentators are misguided?
Still, there has been a steep decline in the wellhead price of oil, and it is important to assess how the short-term fallout from lower prices will impact the economy in the medium term. Additionally, and more importantly, the lower price of oil may provide the impetus for a recalibration of some previously unchallenged assumptions. A further consideration is that the current oil price might open up avenues and options that will include some shifting of relevant government policies in the energy sector.
Everyone is aware that in June 2014 the price of a barrel of oil was around $110 USD and in January 2016 it is below $30 USD. What happened? Why has the world experienced such a price decline for an essential commodity like crude oil? The explanation is rather simple and doesn’t require an advanced degree in economics to understand. The law of supply and demand is at work in the marketplace. The details that provide the long list of reasons why supply vastly exceeds demand are more complicated, but surprisingly easy to digest. For more information on the factors that are contributing to the declining price of oil, the link below provides an analysis of the situation as of January 2016.
http://www.vox.com/2016/1/12/10755754/crude-oil-prices-falling
Assuming that low crude oil prices are a medium-term fact of life, what options exist to address the situation? We’ll begin with the premise that the world economy is arguably very resilient and multi-dimensional. Principles of supply and demand function effectively in most cases, and people come to grips with reality and adjust their expectations all the time. Naturally, some parts of the world rely so heavily on oil money that they won’t be able to avoid spiraling into decline. Places like Russia, Venezuela or Nigeria come quickly to mind. There is little doubt that there will be a greater impact on the economies of countries that have placed all of their bets on selling oil at $100 per barrel. Places like Saudi Arabia will have less money to invest and will need to diversify their overall economy but may not have as much time to do so as they might prefer.
What about oil-rich Canada? While Canada has a high dependency on revenues related to oil in some regions, the latest economic numbers show that, on balance, the overall economy is stable. Two lagging indicators are particularly interesting. In Q3 of 2015, while oil was in freefall, Canada’s employment grew by 1{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} and GDP grew by 2.3{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}. There is considerable financial fallout, much of it well documented, in places like Fort McMurray, Alberta as oil companies delay projects and mothball equipment. The non-negotiable law that dictates “what goes up must come down” is having its effect on real people, and financial hardship at a personal level isn’t pleasant and never seems fair. Nonetheless, if we embrace the rewards that are inherent in a market-based economy, there is an argument to be made for being prepared to accept the downside that can come when the market takes a dive.
So what options and alternatives do we face? We’d like to suggest two radically different options, each with some merits.
- Escalate “green” incentives
When prices of traditional fuels are relatively inexpensive, it may be time for governments to set incentives in place to accelerate the development of alternative forms of energy. These could include policy initiatives like subsidies for wholesale energy conversions by major consumers of oil and gas. It could also include the adoption of carbon taxes. Many influential voices have begun advocating in favour of revenue neutral carbon taxation. The suggestion is that, with the lower price of oil, the impact of moving forward with a tax now will not be as significant compared to what it might have been 18 months ago. This line of thinking includes the premise that the economy will adjust to the new normal of taxed carbon emissions, and the reduction of overall greenhouse gas will begin to diminish independent of fossil fuel price fluctuations.
- Encourage business to lead the way – publicize successes
When companies become change agents, there is progress on social issues. What company today wouldn’t claim to an equal opportunity employer? It is socially unacceptable to suggest that equality is unimportant. The same social pressure is emerging in relation to the stewardship of the environment. Those who advocate for a free market driven approach point to a combination of social acceptability, necessity, market conditions and anticipated ROI that will guide in the conservation of precious resources. In many cases, subsidy-free advances in technology have contributed to the existence of a number of new energy alternatives. In addition, just a few simple steps, like those described in the link below, can increase profits by saving money while having the benefit of appealing to the need to “think green”, a desire that most people in the western world believe essential.
http://www.sustainablebusinesstoolkit.com/going-green-tips-for-the-office/
Whatever policy option, or the combination of options, our policy makers follow, it might be wise to consider the ultimate lesson in the story of “Chicken Little.” As the fearful group assembles around “Chicken Little” and is urged to tell the lion about the terrible news that the sky is about to fall, they are lured into the fox’s den, never to be seen again! The moral for investors? There is always a fox that is waiting to take advantage of those who don’t assess the situation accurately and fail to respond sensibly.
- Published in Blog, Oil and Gas
Fort McMurray: The Next Canadian Ghost Town?
The continued decline of oil prices reminded me of this article put out about a year ago. This year has taken it’s toll on Fort McMurray and its population. Their lively-hoods as well as Canada’s economy heavily relies on the oil market. Asking the question last year implying that Fort McMurray might be on the road to becoming a ghost town was seen as a ridiculous overstatement by some. The current situation will likely have more convinced that this isn’t a scary campfire ghost story, rather a very harsh reality that has many hard working Canadians questioning where to look next to build their futures.
Can Fort McMurray break the ‘Boom and Bust Cycle?
Momentum Public Relations
The decline of oil prices since last June has caused upheaval in the Canadian economy and world markets. From a global perspective, many countries are in dire straights with oil hovering under $50 per barrel. Major oil producing countries like Russia and OPEC member Venezuela face economic collapse with oil staying at the current price. The volatility in the Middle East with the death of King Abdullah and the presence ISIS make forecasting OPEC̕̕ s oil policy a difficult challenge. On the home front, Alberta is expected to fall $7 Billion short of its forecasted revenue. The Bank of Canada cut the national interest rate to prevent inflation and a housing downturn in light of the oil shock. The current situation has forced Alberta Premier Jim Prentice to consider an unpopular provincial sales tax. News of the federal budget potentially going into a small deficit with oil at the current price presents new challenges to the Harper government in what could be an election year. Plunging oil prices have already started to affect the labour market as oil companies like Shell and Suncor have already started laying-off workers and slashing capital budgets. In the midst of all this, Fort McMurray Mayor Melissa Blake is still hopeful of her town’s prospects. Blake states that residents are still “living life as they alwayshave.”
One would expect a politically savvy person like Blake to respond to crisis with optimistic platitudes. The reality is that Fort McMurray exists solely because of the oil industry and the facile argument of life being the same fails to address issues that residents have to face. In a town of 76,000 people made up of mostly migrant and temporary workers and where housing is at a premium, life has already started to change. Mayor Blake states that “Plants are still in operation, we still have jobs, we get up and go to work every day, and we spend our money just as we normally would”. Business owners beg to differ as they have seen a decline in sales as a result of the downturn.
This isn’t the first time the residents of Fort McMurray have faced economic woes. Residents weathered the most recent downturn in 2009; one which many have called a blessing in disguise. This downturn could last longer a lot longer with companies cutting future projects and more layoffs on the horizon should oil hover at its current price. The uncertainty has forced some residents to put their homes on the market as a precautionary move. While many living in Fort McMurray believe that they can weather the storm, a sustained downturn of could see Fort McMurray become a ghost town.
Sources: Business News Network, Globe and Mail, CTV News, CBC News
- Published in Blog, Oil and Gas
The Canadian Economy is Resilient
The Canadian Economy is Resilient
Momentum Public Relations
The volatility of oil prices has been a major global economic factor for the past few years. The unprecedented price drop from levels of close to $100 a barrel in June 2014 down to the mid 30’s a barrel in December 2105 has had a gigantic ripple effect in every industry and in every part of the world.
As we approach 2016, where will oil prices go and how will this impact the overall economy of Canada? Investors, businesses and consumers are watching closely. To suggest that there is a lot of nervousness in the market is an understatement. Accompanying this concern is a number of forecasts that anticipate further oil price drops. At the same time, other forecasters provide strong reasons why there will be a price recovery. Of course, if anyone was actually capable of making a credible prediction on the price and supply of oil the investment community would be paying much closer attention.
The price of oil impacts the Canadian economy differently when it is contrasted with most of the other larger economies in the world. The difference is due to the complexity of Canada being almost equally a producer and a consumer of petroleum. If Canada was primarily an importer or a major net exporter the help/hurt argument would be much more clear. Canada’s economic sectors that rely on the production of oil are suffering from a drop in prices making a return on investment challenging. The inescapable reality is that lower revenues produce a reduction in profitability. At the same time, other important sectors in Canada, like manufacturing and transportation, stand to benefit from a cost reduction for fuel and raw materials.
The short term pain of lower oil prices may actually be beneficial for Canada in the medium term. Sure, in the short term, there is evidence that this is having a significant negative impact in Canada, particularly in places like Alberta. Lagging indicators such as the low rate of GDP growth, the Bank of Canada’s key interest rate and rising regional unemployment are all cause for concern. Nonetheless, there are three reasons why investors and interested observers should be encouraged to take a slightly longer view of the prospects of Canada’s ability to weather the storm.
- Oil is here to stay. The fundamental need for petroleum products is not about to evaporate. Unlike major transitions in technology that have occurred in history, the need for oil and its derivative products will continue. When wood gave way to coal and coal to the use of oil there were substantial technical advances that accompanied each shift. At the moment there is no game changing technical advance that is emerging to render oil obsolete. With little prospect of diminishing tension in places like the Middle East there will continue to be a need for a reliable supply of oil and gas for big consumers like China, Japan and the USA. Even if the consumption of gasoline fell due to the use of alternative energies there would continue to be a very large need for a wide variety of chemicals, consumer goods and medical products that are manufactured from petroleum. Typical products of this sort are listed on this link.
http://www.ranken-energy.com/products{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}20from{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}20petroleum.htm
- An exceedingly diverse economy. Canada is in a far better position to maneuver and manage in a volatile environment. Countries like Russia, Saudi Arabia and even the United States have more compelling concerns. Russia and Saudi Arabia are undoubtedly being forced to deal with a major budgetary shortfall at the moment. The United States has to make a number of important strategic decisions regarding long term supply in an environment where predicting the future is extremely challenging. Canada, on the other hand, is likely to suffer a relatively small loss of overall revenue and may actually see some stronger growth in the medium term if the Canadian dollar remains weak. The complexities and concerns associated with falling oil prices for a number of countries who have much more to lose is outlined in a recent post by Ravi Srikant.
http://www.investopedia.com/articles/investing/051315/complex-story-global-impact-low-oil-prices.asp
- Cities emerging as wealth hubs. The growth of the Canadian economy is, like most major economies in the world, increasingly centered in cities rather than in resource extraction or the sale of commodities. There are six Census Metropolitan Areas (CMAs) in Canada that all have relatively high employment levels and continue with a track record of significant job growth. They are Montreal, Toronto, Vancouver, Ottawa-Gatineau, Calgary and Edmonton. These locations account for roughly 50{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} of Canada’s employment and consequently are a major centre for wealth creation. A great amount of the economic activity in cities comes from the development of new technologies that make new services and product possible. This phenomenon is displayed in Professor Livio Di Matteo’s graph.
http://www.macleans.ca/wp-content/uploads/2015/11/Di-Matteo.png
Some people believe that history repeats itself. In the case of oil, that would mean that the world will see prices that move higher before very long. The theory that what goes up must come down (and vice-versa) is a compelling one. It may be more important to learn from history rather than be resigned to it. Short term issues aside, Canada’s wealth of natural resources is complimented by its open economy and well educated workforce. The future price of oil is anyone’s guess. The future of the Canadian economy, however, isn’t dependent on low or high priced oil. It is dependent on making wise choices around new technologies and ensuring that the cities, that are driving growth, are adequately resourced and that the infrastructure they require to compete effectively on the world stage is second to none.
- Published in Blog, Business, Oil and Gas
Oil Prices Paint an Ugly Picture for Oil Industry
By: Frehiwote Negash –
With oil prices hitting a six-year low this week, the prevailing thought among industry buffs is that the commodities downturn has entered a new phase as many speculate on what 2015 will hold for oil. The collapse in oil prices has forced companies to slash spending on new exploration projects and thousands of job losses in Alberta leading Premier Jim Prentice to inform Albertans that billions of dollars in public spending cuts are coming with the possibility of a provincial tax on the table. In light of the upcoming provincial budget on March 27, the weak projections being made for oil prices increases the odds of a deeper plunge into the red for Albertans. The lack of consensus overall from strategists and the increasingly volatile geo-political situation in the Middle East has certainly exacerbated the issue. With OPEC’s refusal to cut production at the end of 2014, the possibility of a nuclear agreement between Iran and the U.S, and the current rate of oil production in the U.S, many are speculating that there might be millions of barrels in surplus on the market driving oil prices even lower.
As Nexen Energy, acquired by China’s CNOOC Ltd. announced another 400 cuts jobs in Alberta yesterday and the price of oil hovers just above the $42 per barrel mark, many investors are reluctant to invest oil and from a psychological standpoint are wary of the what the future holds. That raises questions about how low oil prices can fall. OPEC members like Venezuela, Nigeria, Iran and Libya are suffering economically because of low oil prices sending some of these countries into deficit and even potentially defaulting in the case of Venezuela. While Iran’s case is aggravated by sanctions, Russia, a non-OPEC producer, is in a similar dilemma as its economy is being crushed due to the combinations of low oil prices and international sanctions. These countries need OPEC to cut production not only for economic reasons but also their standing internationally as these countries’ fortunes, particularly Russia, are inextricably linked to the price of oil.
As OPEC refuses to cut production, American production has skyrocketed and the surplus has forced producers to stockpile their reserves which are currently at record levels and adding to the problem. When American storage units are filled to capacity, the surplus of oil will have to be sold on the spot market driving prices even lower than they currently are. The view here is pessimistic as cuts in production and drilling have not diminished the global supply but the sentiment here is that oil is poised to return to a bear market.
Source: Toronto Star, Financial Post, Globe and Mail
- Published in Blog, Business, Oil and Gas
Falling Oil Prices – Canadians Feeling the Effects
By: Frehiwote Negash
The fall in oil prices in the last eight months has begun to wreak havoc on the economy and Canadians are starting to feel the effects. The Albertan government announced that 31 000 jobs could be lost by the end of the year should oil prices remain stagnant. Energy companies like Suncor have cut their capital budgets and laid off workers with unemployment at 5.4{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}; up from 4.7{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} last year. While Alberta still expects to avoid a deficit this year, revenues will take a massive hit with investments in the oil fields dropping by about 30{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} this year reducing the number of on-going projects and halting exploration. The collapse in energy sector will wipe out an estimated $23 billion in profits for corporations and reduce government coffers in the next two years. The fear is that the drop in oil prices could spur a recession in Alberta; a belief that Premier Jim Prentice disagrees with yet it’s still too early to assess the damage. The Albertan economy will slow dramatically over the course of the next year but that does not necessarily mean that its will contract every quarter. Whether we care to admit it, Canada’s energy sector represents a significant portion of our economy and its performance impacts every Canadian.
In the immediate short term, the fall in oil prices translates into more money in consumer pocketbooks as it is estimated that the average Canadian will save $1000 this year at the gas pumps. In the long-term, the oil collapse translates into lower incomes for Canadians overall thus increasing the debt-to-income ratio and with the inconsistent performance of the labour market in recent months, can lead to economic instability; a situation the Bank of Canada wants to minimize if not entirely avoid. The Bank of Canada’s recent rate cut in January with the Canadian dollar falling was explained by Bank Governor Stephen Poloz as an opportunity for the central bank to assess the impact of the energy sector on the Canadian economy. Their position is that even with the oil shock hitting Alberta hard in the coming year, there is room for the Canadian economy to grow. Poloz argues that the lower Canadian dollar, the recovery of the American economy and the central bank’s monetary policy of late will be key factors in helping to boost the economy. The next time the Bank of Canada will announce the lending rate will be March 4 along with the release of the Monetary Policy Report issued at every quarter which hopefully will provide a clearer outlook on the state of the economy.
Source: Globe and Mail, Toronto Star, Financial Post
- Published in Blog, Business, Oil and Gas
Fort McMurray; The next Canadian Ghost Town?
Can Fort McMurray break the ‘Boom and Bust Cycle?
By: Frehiwote Negash –
The decline of oil prices since last June has caused upheaval in the Canadian economy and world markets. From a global perspective, many countries are in dire straights with oil hovering under $50 per barrel. Major oil producing countries like Russia and OPEC member Venezuela face economic collapse with oil staying at the current price. The volatility in the Middle East with the death of King Abdullah and the presence ISIS make forecasting OPEC̕̕ s oil policy a difficult challenge. On the home front, Alberta is expected to fall $7 Billion short of its forecasted revenue. The Bank of Canada cut the national interest rate to prevent inflation and a housing downturn in light of the oil shock. The current situation has forced Alberta Premier Jim Prentice to consider an unpopular provincial sales tax. News of the federal budget potentially going into a small deficit with oil at the current price presents new challenges to the Harper government in what could be an election year. Plunging oil prices have already started to affect the labour market as oil companies like Shell and Suncor have already started laying-off workers and slashing capital budgets. In the midst of all this, Fort McMurray Mayor Melissa Blake is still hopeful of her town’s prospects. Blake states that residents are still “living life as they alwayshave.”
One would expect a politically savvy person like Blake to respond to crisis with optimistic platitudes. The reality is that Fort McMurray exists solely because of the oil industry and the facile argument of life being the same fails to address issues that residents have to face. In a town of 76,000 people made up of mostly migrant and temporary workers and where housing is at a premium, life has already started to change. Mayor Blake states that “Plants are still in operation, we still have jobs, we get up and go to work every day, and we spend our money just as we normally would,”. Business owners beg to differ as they have seen a decline in sales as a result of the downturn.
This isn’t the first time the residents of Fort McMurray have faced economic woes. Residents weathered the most recent downturn in 2009; one which many have called a blessing in disguise. This downturn could last longer a lot longer with companies cutting future projects and more layoffs on the horizon should oil hover at its current price. The uncertainty has forced some residents to put their homes on the market as a precautionary move. While many living in Fort McMurray believe that they can weather the storm, a sustained downturn of could see Fort McMurray become a ghost town.
Sources: Business News Network, Globe and Mail, CTV News, CBC News
- Published in Blog, Oil and Gas
Oil prices slip on record Iraq output
As your Investor Relations firm, it is our job to keep you posted on the latest market news
Oil came fell just under $50 per barrel this morning upon news of Iraq’s record output in December. The news is on top of the Goldman Sachs report issued last week that foreshadowed a rather bleak year for oil.
The small gains that were made on Friday vanished quickly today.The news on Iraq output is in line with OPEC’s position on maintaining their current production pace.
Due to securities violations by China’s 3 largest brokerage firms, the markets plunged with the Shanghai Composite Index falling as much as 8{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} at one point.
This is evidence of structural issues within the Chinese economy as brokerage firms are lending money to enable clients to purchase securities. This coupled with the government’s expected report of slower economic growth helps explains the drop on the market.
————
By Himanshu Ojha
Brent crude oil prices fell below $50 a barrel on Monday after Iraq announced record oil production and the global economic outlook darkened.
Iraqi Oil Minister Adel Abdel Mehdi said on Sunday Iraq pumped 4 million barrels per day (bpd) of oil in December, its highest ever thanks to higher output from its southern terminals and a surge in supply from the north.
Abdel Mehdi said Iraq planned to a big increase in exports from the northern city of Kirkuk and the Kurdistan region, which would increase production to 600,000 bpd from April.
Brent crude traded around $49.40 a barrel early Monday morning, down 77 cents. U.S. crude was trading down 74 cents at $47.95 a barrel.
“There’s still more supply than demand and that’s a situation that will not change in just a few weeks,” said Hans van Cleef, energy economist at ABN Amro.
Oil prices have dropped by more than half since last June as output around the world has soared while demand growth has slowed. Although the International Energy Agency (IEA) said last week a reversal in the trend was possible this year, it added that prices may fall further before rising.
Analysts said prices found some support from a drop in U.S. drilling rigs, signifying a likely fall in production in the future. But they said there was not much room for gains.
“Some positive data points helped to stabilize oil for now … Upbeat IEA comments and a falling U.S. rig count were the latest positive news. While the news was able to halt oil’s price decline, it (is) not enough to turn prices bullish,” Morgan Stanley said in a note to clients on Monday.
China, the world’s biggest energy consumer, is expected on Tuesday to report its weakest economic growth for more than two decades. Data from China’s National Bureau of Statistics showed on Sunday house prices fell for a fourth straight month.
A meeting of the European Central Bank on Thursday will likely see the launch of a government bond-buying campaign, pointing to further euro falls against the dollar as well as to downward pressure on oil prices.
“It is not hard to find evidence of increasing concerns around global economic weakness. Yield curves across the world have been flattening (longer term yields falling relative to short ones), a dynamic typically associated with expectations of weakening economic conditions,” Timera Energy said on Monday.
Source: Business News Network
- Published in Blog, Oil and Gas
Harper’s Oil Dilemma
Alberta, Canada’s wealthiest province started 2014 with a booming economy and expected the same for 2015. In retrospect, that might have been the good old days as Alberta’s economic projections in light of the oil crash have dimmed significantly over the last 6 months. Upon Goldman Sachs announcing their dismal oil forecast , oil hit a 5-year low on Monday. The prospect of the proverbial golden goose dying a slow and painful death is causing ripples throughout the Canadian economy. Suncor announced today it will cut 1000 jobs due to low oil prices and slash their capital budget. Many companies such as Shell are following suit . The Canadian housing market could be affected as rising housing prices correlated to the price of oil increasing. The dreaded ‘R’word was uttered today describe Alberta’s fortunes for 2015 and even a mention of a sales tax by Alberta Premier Jim Prentice illustrates how dire the situation is. The oil collapse has the auto industry in Detroit baffled as to what consumers will want from them. The future of the Keystone pipeline is in jeopardy with President Obama saying he would veto should the bill came across his desk. An insightful article on the future of the pipeline explains the political and environmental challenges placed by Stephen Harper’s Conservatives and how it could affect the heart of the Albertan economy.
- Published in Blog, Oil and Gas
What Cheap Oil Really Means
Written by Frehiwote Negash
When Oil prices crossed the $100 per barrel threshold in 2008, there was a prevailing thought that this might be considered the new normal. Oil prices have crossed that benchmark numerous times in the last 6 years hitting $115 as early as June (Isadore, 2014). Since then, oil prices have dropped over 50 {92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} in the last 7 months; a staggering drop for a popular commodity. With Saudi Arabia’s Petroleum Minister announcing that Opec will not cut oil production regardless of the price per barrel, the days of $100 per barrel of oil are officially over (Defterios, 2014).
Countries like Canada and Russia are net energy exporters with oil being their largest export. While sanctions might have limited Russia’s economic prospects, the fall of oil prices has done more to damage their economy as evidenced by the free fall of the ruble last week. Yesterday, the Canadian dollar hovered near its 5 year low today hitting .85 against the American dollar (Nguyen, 2014). While the performance of the American dollar is boosted by its strengthened economy, the fall of the loonie can be attributed to fluctuating price of commodities, oil being the trigger point. Other oil producing countries such as Norway also suffered as the krone also hit a 5 year low upon the Opec announcement (Nguyen, 2014). This serves to further complicate things for non- Opec countries as the surplus of oil on the market will force them to slow production substantially and cancel future project in order to stay competitive.
As oil prices drop, Canadian consumers are delighted at the prospect of paying a little over a $1.10/l at the pumps during the holiday season. While it is clear that consumers benefit directly from lower oil prices, the same cannot be said for investors, governments and their respective economies. The recent fall in oil prices has had a massive impact on world markets. It has triggered panic selling forcing governments to act swiftly and adjust to the new reality. The price of oil is a major indicator for government projections. It helps governments determine how they plan and execute annual budgets. It can determine foreign policy and the outcomes of elections. In the short term, consumers see more money in their pocketbooks. However, with the free fall in oil prices and a weaker loonie there will be by-products of this crisis that affect all Canadians by way of government policy. Consumers have to remember that the loonie is a commodity currency so as the oil goes, the loonie goes.
For Canadians heading south for the holidays, that means less bang for your buck. For Albertans, lower oil prices means less in the public coffers as Premier Jim Prentice announced yesterday that Alberta will be $7 billion short of their estimated windfall (Curry, 2014).if you live in Southern Ontario, the hope is that the lower dollar will help boost the flagging manufacturing sector. The price of oil has created ripple effects in the Canadian economy but a sustained period will cause a tidal wave that affects every Canadian.
Works Cited
Curry, Bill. “Dropping loonie, sliding oil price redraw provinces’ economic pictures” Last accessed December 24, 2014. http://www.theglobeandmail.com/news/politics/federal-budget-revisions-shake-up-provincial-finances/article22184872/
Defterios, John .”Saudi Arabia: We’ll never cut oil production.̎Last accessed December 23, 2014. http://money.cnn.com/2014/12/22/news/economy/saudi-arabia-oil-production/index.html?iid=EL
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- Published in Blog, Oil and Gas