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Can U.S. Shale Survive The Oil Price War – OilPrice.com

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Can U.S. Shale Survive The Oil Price War? | OilPrice.com

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Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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On Friday, the oil market’s worst fears came true: OPEC+ failed to agree on how to deal with the coronavirus’ effect on oil demand, sending oil prices plunging. But with the start of the new week came new horrors for the oil market, with Russia and Saudi Arabia waging a full-on oil price war as both prepare to increase oil production and flood the market.

And now, the market is left wondering which mega oil producer will cry uncle first: Saudi Arabia or Russia. But a third-wheel in this oiltastrophe is none other than US shale, and both Russia and Saudi Arabia are likely rooting for the death of America’s oil production, which undermined OPEC+’s best efforts to manage the market thus far.

Amid this catastrophic development that saw an ugly end to the Saudi Arabia and Russia relationship, analysts and banks are scrambling to redo their oil price forecasts yet again, with the coronavirus still breathing down their necks, and with the two increasing oil production at a time when oil demand is expected to contract in 2020 for the first time since 2009.

And what the early analysts are predicting is that oil prices will fall—and fall hard.

And it’s already begun.

Spot prices for WTI crude had fallen to $30.23—a price level not seen in years. Brent crude was trading down to $34.36

Is this price sustainable for oil producers?

Russia, at least, says yes.

Russia’s Finance Ministry on Monday declared that Russia could sustain $25-$30 oil for at least six—and as many as ten—years.

But some analysts say this is magical thinking, and that a more realistic timeframe for weathering a super low oil price environment can be measured in months, not years. Related: Offshore Wind To See $200+ Billion Expansion By 2025

Regardless, it is not important that Russia be able to withstand $25 for ten years. It only needs to hold out longer than now-rival Saudi Arabia, and that’s a likely scenario.

Russia’s eagerness to test that theory, to some, may seem rather cocksure, but there is likely a method behind their seeming madness.

If Russia and Saudi Arabia had indeed agreed to even more of a production cut, what then of US shale? Russia has long argued that further production cuts are merely playing into the hands of US shale; the more production OPEC+ members cut, the more room US shale is given to ramp up production. An oil cartel’s strength to manipulate markets, after all, is directly tied to the percentage of global production they wield.

And the United States produces more oil than either Saudi Arabia or Russia.  

“We, yielding our own markets, remove cheap Arab and Russian oil from them to clear a place for expensive American shale. And to ensure the efficiency of its production. Our volumes are simply replaced by the volumes of our competitors. This is masochism,” Rosneft spokesman Mikhail Leontiev told Russia’s Ria Novosti news agency over the weekend.

There is no real solution to this predicament that OPEC and its allies have put themselves in. Their market manipulation efforts have managed to hold prices up for a time, but it has also opened the door for US shale to turn on the taps—and US producers were all too willing to take advantage.

Now, Russia is ready to push back US shale with low oil prices that Russia hopes will knock back America’s zealous energy independence campaign.

The Case For Saudi Arabia

Like Russia, Saudi Arabia claims low breakeven levels for oil too. But these figures are not audited, and not verifiable. The Kingdom has said in the past that their straight-up breakeven is $10 per barrel. But that’s not the whole monetary story. Aramco struggled to generate a profit even when oil was hovering around $45 per barrel back in 2016, reporting a free cash flow of just $2 billion.

The price at which Saudi Arabia’s budget breaks even—the fiscal breakeven–is more like $83.60 per barrel—nearly twice the level that Russia needs, and well below what oil is trading at today. Related: Climate Change Goals May Not Go Far Enough

It seems highly unlikely that Saudi Arabia would be able to outlast Russia in this game of chicken, but it might be banking on at least outlasting US shale.

But such a strategy from The Kingdom may bring back painful memories for Russia (and the United States) of 1986, when Saudi Arabia, frustrated with OPEC members who kept overproducing when the market wasn’t hungry for it, employed a strategy of willfully overproducing itself, undercutting oil prices—a strategy that sank oil to just $10 a barrel.  

The Mighty US Shale Takes on Saudi Arabia and Russia

US shale producers are a whole different beast from Saudi Arabia and Russia, and US shale producers won’t go down without a fight.  

Not state-owned, each US shale producer can act independently. But they also are not officially subsidized and therefore must bend to the will of the markets. That is, unless banks are willing to extend cash to US producers regardless of production companies’ viability in a low-price environment.

Thus far, US shale has outlasted what even most analysts thought—certainly longer than what Saudi Arabia thought, when it tried to drown US shale in oil just a few years back before it failed miserably and decided to, with the help of OPEC, cut production instead.

Analysts are predicting that many US oil companies will face tough times if oil prices continue down its current path. US shale has long been accused of being debt-laden, and breakevens for US drillers are somewhere in the high $40s per barrel.

But analysts—and OPEC–have made that mistake before, at their peril. US shale has lapped up many of the barrels that OPEC and Russia have ceded, whether propped up by debt or not, and they very well may do so again, leaving Russia and Saudi Arabia to fight over who will be the biggest loser.

By Julianne Geiger for Oilprice.com

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Calgary breaks all-time record in housing starts but increasing demand keeps inventory low – CBC.ca

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Soaring housing demands in Calgary led to an all-time record for new residential builds last year, but inventory levels of completed and unsold units remained low due to demand outpacing supply.

According to the latest report from Canada Mortgage and Housing Corporation (CMHC), total housing starts increased by 13 per cent in Calgary, reaching a total of 19,579 units with growth across all dwelling types in the city.

That compares to a decline of 0.5 per cent overall for housing starts in the six major Canadian cities surveyed by CMHC.

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Calgary also had the highest housing starts by population.

“Part of the reason why we think that might have happened is that developers are responding to low vacancies in the rental market,” said Adebola Omosola, a housing economics specialist with CMHC.

“The population of Calgary is still growing, a record number of people moved here last year, and we still expect that to remain at least in the short term.”

Earlier this year, the Calgary Real Estate Board also predicted that demand, especially for rental apartments, wouldn’t let up any time soon. 

Industry can cope with demand, expert says

According to numbers from the report, average construction times were higher in 2023 for all dwelling types except for apartments.

The agency’s report suggests the increase in the number of under-construction residential projects might mean builders are operating at or near full capacity.

However, there’s optimism the construction industry can match the increasing need.

Brian Hahn, CEO of BILD Calgary Region, said despite concerns around about construction costs, project timelines and labour shortages, the industry has kept up with the demand for new builds.

Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary region CEO Brian Hahn.
Demand is expected to remain robust, but the construction industry can keep up, according to BILD Calgary Region chief executive officer Brian Hahn. (Shaun Best/Reuters)

“I’ve heard that kind of conversation at the end of 2022 and I heard it in 2023,” Hahn said.

“Yet here we are early in 2024, and January and February were record numbers again.”

Hahn added he believes the current pace of construction will continue for at least the next six months and that the industry is looking at initiatives to attract more people to the trades.

Increase in row house and apartment construction

Construction growth was largely driven by new apartment projects, making up almost half of the housing starts in Calgary in 2023.

The federal housing agency says 9,034 apartment units were started that year, an increase of 17 per cent from the previous year. Of those, about 54 per cent were purpose-built rentals.

Apartments made up around two-thirds of all units under construction, CMHC said, with the total number of units under construction reaching 23,473.

Growth, however, was seen across all dwelling types. Row homes increased by 34 per cent from the previous year while groundbreaking on single-detached homes grew by two per cent.

“Notwithstanding challenges, our members and the industry counterparts that support them managed to produce a record amount of starts and completions,” Hahn said.

“I have little doubt that the industry will do their very best to keep pace at those levels.”

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Ottawa real estate: House starts down, apartments up in 2023 – CTV News Ottawa

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Rental housing dominated construction in Ottawa last year, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).

Residential construction declined significantly in 2023, with housing starts dropping to 9,245 units, a 19.5 per cent decline from the record high observed in 2022. But while single-detached and row housing starts fell compared to 2022, new construction for rental units and condominiums rose.

“There’s been a shift toward rental construction over the past two years. Rental housing starts made up nearly one third of total starts in 2023, close to double the average of the previous five years,” the report stated.

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Apartment starts reached their highest level since the 1970s.

“The trend toward rental and condominium apartment construction follows increased demand in these market segments due to population growth, households looking for affordable options, and some seniors downsizing to smaller units,” the CMHC said.

Demand from international migration and students, the high cost of home ownership, and people moving to Ottawa from other parts of Ontario were the main drivers for rental housing starts in 2023. The CMHC says rental and condominium apartment starts made up 63 per cent of total starts in 2023, compared to the average of 37 per cent for the period 2018-2022.

There was a modest increase in rental housing starts in 2023 over the record-high seen the year prior and a jump in new condominiums. The report shows 5,846 new apartments were built in Ottawa last year, up 2.1 per cent compared to 2022.

Housing starts in Ottawa by year. (CMHC)

Big demand for condos

The CMHC said condo starts reached a new high in 2023, increasing 3 per cent from 2022 numbers.

“As of the end of 2023, there were only 13 completed and unsold condominium units, highlighting continued demand for new units,” the CMHC said.

Condominum starts increased in areas such as Chinatown, Hintonburg, Vanier and Alta Vista, as well as some suburban areas like Kanata, Stittsville, and western Orléans. Condo apartment construction declined in denser parts of the city like downtown, Lowertown and Centretown, the report says.

Taller buildings are also becoming more common, as the cranes dotting the skyline can attest. The CMHC notes that buildings with more than 20 storeys accounted for nearly 10 per cent of apartment structure starts in 2022 and 2023, compared to an average of 2 per cent over the 2017-2021 period. The number of units per building also rose 7 per cent compared to 2022.

Apartment building heights in Ottawa by year. (CMHC)

Single-detached home construction down significantly

The number of new single-detached homes built in Ottawa last year was the lowest level seen in the city since the mid 1990s, CMHC said.

“The Ottawa area experienced a slowdown in residential construction in 2023, driven by a significant decline in single-detached and row housing starts,” the CMHC said.

Single-detached housing starts were down 45 per cent compared to 2022. Row house starts dropped by 38 per cent compared to 2022, marking a third year of declines in a row.

“Demand for single-detached and row houses also declined in 2023. Higher mortgage rates and home prices have led to a shift in demand toward more affordable rental and condominium units,” the report said.

There were 1,535 single-detached housing starts in Ottawa last year, 208 new semi-detached homes and 1,678 new row houses.

The majority of single-detached and row housing starts were built in suburban communities such as Barrhaven, Stittsville, Kanata, Orléans and rural parts of the city.

“Increased construction costs resulting from higher financing rates and inflation that occurred in 2022 and 2023 contributed to the decline in construction in the region,” the CMHC said. 

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Trump’s media company ticker leads to fleeting windfall for some investors

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A man looks at a screen that displays trading information about shares of Truth Social and Trump Media & Technology Group, outside the Nasdaq Market site in New York City, U.S., March 26.Brendan McDermid/Reuters

Possible confusion over the new stock symbol for former President Donald Trump’s Truth Social (DJT-Q) saw some investor brokerage balances briefly jump by hundreds of thousands of dollars on Tuesday, the first day Trump’s “DJT” ticker traded.

Several people complained on social media about briefly seeing the value of their DJT stock holdings on Charles Schwab platforms inflated to figures more in line with what they would be worth if the shares traded at the level of the Dow Jones Transportation Average.

Some users said they faced a similar issue in pre-market hours on Morgan Stanley’s E*Trade trading platform.

Shares of Trump Media & Technology Group opened Tuesday at $70.90, while the Dow Jones Transportation Average started the session at 15,937.73 points.

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For one trader, the Schwab brokerage balance jumped by more than $1 million due to the error, according to a screen grab shared on social media platform X. Reuters was unable to contact the trader or independently verify the brokerage balance.

“It sure was nice seeing millions in the account, even if it wasn’t real,” another person, going by the username @DanielBenjamin8, who faced the issue in his E*Trade account, posted on X.

Two X users and one on Reddit surmised that the inflated balances were due to the ticker symbol for the company being nearly identical to the index.

A spokeswoman for Charles Schwab said that certain users on some of Schwab’s trading platforms saw their brokerage balances briefly inflated due to a technical issue.

The issue has been resolved and investors are able to trade equities and options on Schwab platforms, she said. Schwab declined to describe the exact cause of the issue.

E*Trade did not immediately respond to a request for comment outside of regular business hours.

Trump Media & Technology Group and S&P Dow Jones Indices, which maintains the Dow Jones Transportation Average Index, did not immediately comment on the issue.

While social media users said the issue appeared to have been resolved, many rued not being able to cash out their supposed gains from the error.

“I better go tell my boss that I’m actually not retiring,” the trader whose account balance had briefly jump by more than $1 million, wrote on X.

Trump Media & Technology Group shares surged more than 36% on Tuesday in their debut on the Nasdaq that comes more than two years since its merger with a blank-check firm was announced.

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