In its latest report, OPEC only slightly downgraded its forecast for global oil demand, lowering it to 1.10 million barrels per day (mb/d) for 2019, down only a minor 0.04 mb/d from a month earlier. That estimate could end up being too optimistic, and OPEC itself said the forecast is “subject to downside risks stemming from uncertainties with regard to global economic development.”
Notably, OPEC said that global supply could grow by 1.97 mb/d this year, significantly outpacing demand growth. Still, that figure is down by 72,000 bpd from a previous estimate, due to lower-than-expected production growth in the U.S., Brazil, Thailand and Norway.
In another worrying sign of a brewing supply surplus, OPEC said that oil inventories in OECD countries rose by 31.8 million barrels in June from a month earlier, rising to 67 million barrels above the five-year average. In other words, just as OPEC+ was meeting to extend the production cuts for another 9 months, inventories were rising, an indication of an oversupplied market.
On a slightly positive note (for OPEC), the group revised up demand for its crude by 0.1 mb/d for both 2019 and for 2020. Still, it said that demand for its oil, often referred to as the “call on OPEC,” would drop to 29.4 mb/d in 2020, down from 30.7 mb/d this year.
Based on those numbers, OPEC+ is staring down a serious supply glut next year absent further action. The group can either stick with current production levels and risk another market downturn, or it can swallow further production cuts.
What happens next is largely outside of OPEC’s hands. Recent price movements are almost entirely the result of shifting sentiments regarding the global economy. “The yo-yoing on the oil market continues and the oil price remains highly prone to fluctuations. After sliding massively on Wednesday, Brent was hit hard once again [Thursday], shedding over 3% in a matter of hours,” Commerzbank said in a note on Friday. “The oil price currently remains at the mercy of expectations for the global economy, and is thus caught between economic concerns and hopes that the trade dispute might end soon.”
U.S. retail sales eased some concerns on Friday, but the global backdrop remains worrying, and a steady release of data from around the world continues to point in a negative direction. Just in the last week, there was the inverted yield curve for U.S. treasuries, a stock market and currency meltdown in Argentina, volatile oil prices, and widespread fears of a global economic recession.
Even the U.S. is not immune, despite mostly healthy data up until recently. For instance, Wall Street analysts have slashed their outlooks for corporate earnings for the third quarter in recent weeks. “Everyone in April and through the beginning of May thought that the economy was going to get better in the back half of the year, trade war was going to sort of settle, certainly not escalate,” Eastman Chemical Chief Executive Mark Costa said on an earnings call last month, as the WSJ reported. “And now we’re just in a very different world where I don’t think that’s true…There’s not a lot of signs of economic recovery coming in the second half.”
Ultimately, the U.S. will struggle to outrun a global slowdown. The World Trade Organization (WTO) painted a bleak picture for the third quarter, saying that trade volumes are “likely to remain weak.” The global auto sector has been hit hard this year, with a sharp contraction in China, India and Germany. The U.S. auto industry is starting to show some signs of strain as well.
The problem for oil prices is that the outlook for 2020 is already pretty bearish, with supply growth outpacing demand. That’s the base case right now. But the odds of economic recession continue to grow, which threatens to make the supply overhang that much worse.
CPPIB posts 2.3-per-cent return in second quarter
Canada Pension Plan Investment Board posted a 2.3-per-cent return in the quarter ended Sept. 30, helping it maintain double-digit long-term returns and add nearly $10-billion to its total assets.
CPPIB, the investment manager for the Canada Pension Plan, said its five-year and 10-year returns through Sept. 30 averaged 10.3 and 10.2 per cent over the period, and it closed the quarter with assets of $409.5-billion.
CPPIB didn’t break out returns by asset class, but said the group that actively manages its equity investments, as well as its private-equities division, were “strong contributors.” The Active Equities department picks specific stocks with an aim to outperforming the market, while private equity is the ownership of private companies, often aided by substantial borrowing.
It received “modest gains” from its passive portfolio, a style of investing designed to match the overall market. CPPIB also said it had positive performance in other asset classes, including its bonds, aided by declining interest rates.
A little less than one-third of the fund’s assets are in stocks traded on the public markets. A quarter of the portfolio is private equity.
All return percentages are net of costs, CPPIB said. Because the CPP must serve plan members for decades to come, CPPIB says long-term results “are a more appropriate measure of CPPIB’s investment performance compared to quarterly or annual cycles.”
Canada Pension Plan, founded in 1966, is the primary retirement-security program for working Canadians. The government created CPPIB in 1999 to professionally manage the Plan’s money. The past two decades have seen a shift first from bonds to stocks, then to assets like real estate, infrastructure and private equity. The government projects the CPP Fund will grow to $545-billion in assets by 2025 and $1.5-trillion in assets by 2040.
Major deals in the quarter included buying publicly traded Pattern Energy Group Inc. for US$2.3-billion in cash, valuing the company at US$6.1-billion, including debt. It also struck a deal to merge data-information provider Refinitiv into the London Stock Exchange, valuing Refinitiv at US$27-billion.
Trade mission seeks to calm concerns about forestry downturn
Forests Minister Doug Donaldson says he’s in Asia trying to calm investor concerns about reduced supplies of British Columbia timber for major residential developments and tourism-resort projects in China and Japan.
Donaldson, in a teleconference from Tokyo, says he and 35 senior executives from B.C. forest companies and associations are on a five-day trade mission to Asia that concludes Friday.
He says the Chinese and Japanese are keenly aware of the toll pine beetle infestations and massive wildfires have taken on B.C.’s forests, but business leaders and forests ministry officials are reassuring potential customers the province has abundant supplies of timber.
The Opposition Liberals recently released a document detailing ongoing forest industry struggles, listing almost 60 examples where companies have implemented cost-cutting measures that range from harvest reductions to permanent mill closures.
The detention of top Huawei executive Meng Wanzhou in Canada prompted the minister to postpone his planned participation on a forestry trade mission to China last December.
Donaldson says this week’s trade talks in Japan and China focused only on business.
Union representing SkyTrain workers considers possible strike action
CUPE Local 7000, the union representing 900 SkyTrain workers, says negotiations with the BC Rapid Transit Company (SkyTrain) have reached a deadlock.
CUPE Local 7000 says that there have been more than 40 sessions at the bargaining table since the beginning of May, and that talks broke down Tuesday, Nov. 12. It says that both sides were unable to reach an agreement on several key issues.
“The Company has failed to offer fair wages or address the sick plan, inadequate staffing levels, forced overtime, and other issues important to our members,” said CUPE 7000 President Tony Rebelo.
“We have been more than proactive and flexible in trying to reach solutions to improve the service, but the employer’s latest package failed to address the key issues. They are simply not interested in bargaining seriously, so we’re left with little choice but to go to our members and seek direction for next steps.”
CUPE 7000 represents approximately 900 SkyTrain workers who provide service as SkyTrain attendants and control operators as well as administration, maintenance, and technical staff.
Vancouver Is Awesome reached out to TransLink for comment and will update the story when they have provided comment.
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