Every day, traders in London congregate at 4 p.m. to buy and sell North Sea oil for half an hour. The window, as it’s known in the industry, is where competition between the most powerful players in the market sets the price of Brent crude.
Two months ago, every trader wanted to sell cargoes and none were keen to buy. Now the window has transformed into a bull market, where bids outnumber offers 10 to one and prices are surging.
“The physical market is strong,” said Ben Luckock, co-head of oil trading at Trafigura Group.
The turnaround reflects the most torrid period in the history of oil.
First, the coronavirus outbreak obliterated demand in China and shattered the oil alliance between Moscow and Riyadh. Next, the global epidemic and destructive Saudi-Russia price war pushed the market to the brink of disaster. The collapse brought the rivals back together for the biggest production cut on record, just as the pandemic ebbed.
Mirror Image
The renewed strength of the “physical market” for crude — where actual barrels change hands between producers, refiners and traders — is driving a surge in the much larger Wall Street world of oil contracts traded on exchanges in London and New York.
West Texas Intermediate futures rose above US$40 a barrel on Friday. That’s a mirror image of two months earlier, when the U.S. benchmark made an unprecedented plunge into negative pricing as storage tanks came close to filling.
Beyond the symbolism of that number for the American market, the oil price curve for Brent — the range of futures contracts covering the coming months — shows the international market has transformed too.
It flipped last week into so-called backwardation, with crude for immediate delivery trading at a premium to forward contracts. That shape is a telling sign that refiners that saw demand for their products disappear during the lockdown, are now willing to pay top dollar to secure supplies for their facilities.
Leaving Lockdown
“You can see demand ramping up every week,” said Marco Dunand, co-founder of major oil trading house Mercuria Energy Group Ltd.
In China, oil consumption is now back to pre-pandemic levels, according to official data. It’s still down in countries like Italy and Spain, which were badly affected by the coronavirus, but rapidly recovering in others, including India, Japan, France and Germany.
Global demand fell as much as 30 per cent in late March and early April, when governments locked down entire countries. The scale of the rebound is still hotly debated, but most say consumption is now 10 per cent to 15 per cent below normal levels.
“Our short-term tracking of demand confirms a healthy recovery from the lows of April,” said Giovanni Serio, chief economist at Vitol Group, the world’s largest independent oil trader.
Vitol estimates that oil demand is rising by about 1.4 million barrels a day every week in June — that’s roughly equal to adding the whole consumption of the U.K. to the market, weekly.
Second Wave
The market isn’t out of the woods yet. In many countries, the first wave of the pandemic is still accelerating, while China had to take drastic measures this week to avoid a second wave taking hold in Beijing.
The continuing influence of the virus on daily life is visible in the uneven nature of the oil recovery. Gasoline is leading the rebound as people choose to drive their cars and avoid public transport. For the first time since the pandemic, the fuel is more expensive for immediate delivery in the U.S. wholesale market than forward contracts, a sign of demand strength.
“We see a V-shape recovery for gasoline,” said Chris Midgley, head of analytics at S&P Global Platts and a former head of oil markets analysis at Royal Dutch Shell Plc.
Yet, diesel, a fuel more closely linked to the business cycle because it powers industries and freight movements, is lagging as the world’s economy tips into recession. Demand for jet fuel remains almost as depressed as it was during the peak of the coronavirus crisis.
Historic Cuts
Oil consumption doesn’t have to come back in full as long as Saudi Arabia, Russia and the rest of the OPEC+ alliance are cutting production sharply. The group has removed about a 10th of supply from the market, while U.S. and Canadian output has also fallen sharply.
The scarcity created by the Organization of Petroleum Exporting Countries and its allies has pushed prices to unusually high levels even in Europe, a continent only tentatively emerging from lockdown.
Urals, Russia’s flagship export blend, was selling at a US$4.60-a-barrel discount to Brent in northwest Europe in late March. Now, refiners are buying the grade at a US$1.55 premium, the highest in almost 10 years. Saudi Arabia’s Arab Light crude will sell at a premium of 30 cents a barrel in the region in July, up from a discount of US$10.25 in April.
Balanced Market
The steep OPEC+ cuts mean that even a weakened global economy is probably consuming roughly as much crude as it’s producing right now. That’s a massive turnround from the March-to-May period, when traders put about a billion barrels of unwanted oil into tanks, underground caverns and even ocean-going tankers.
If OPEC+ manages to make every country stick to its output quotas and demand keeps rising, the world could soon start consuming more oil than it produces.
“There have been encouraging signs of recovery in demand and a rebalancing of global oil markets,” Saudi Energy Minister Prince Abdulaziz bin Salman told a gathering of some OPEC+ ministers last week. “The world economy has embarked on the long journey of easing the lockdowns, but there will inevitably be setbacks and reversals.”
The shrinking of bloated stockpiles can often be a catalyst for rising prices, but it could be a slow process. Additional demand could just as easily be met by just-in-time supplies — a combination of OPEC+ tapering off its output cuts and U.S. shale output recovering.
Not many traders expect to see US$50 a barrel this year. Still, even fewer of them believe that a return to the ultra-low prices of April, when Brent fell to US$15.98 a barrel, is likely.
“The oil market is now, for the first time in several months, finding its stability,” Luckock of Trafigura said in an interview. “At $40 a barrel, we can trade a few dollars higher and a few lower. But for the first time in a few months, you can see a range.”
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
