The European Union has reached a deal for a $60-per-barrel price cap on seaborne Russian oil, aimed at significantly reducing Moscow’s income and President Vladimir Putin’s ability to continue to finance the war in Ukraine.
On Friday, holdout Poland backed the deal, which stops countries paying more than $60 a barrel. In order to go through, it needed the agreement of all 27 EU states.
The details are due to be published in the EU legal journal on Sunday. The deal will be a vital step for Western sanctions that have aimed to reorder the global oil market to prevent price spikes.
After a last-minute flurry of negotiations, the EU presidency, currently held by the Czech Republic, tweeted that “ambassadors have just reached an agreement on price cap for Russian seaborne #oil.”
#COREPERII | ✅ Ambassadors have just reached an agreement on price cap for Russian seaborne #oil 🛢️. Written procedure follows, decision will enter into force on publication in the Official Journal. EU stays united and #StandWithUkraine. 🇺🇦🇪🇺 #EU2022CZ pic.twitter.com/92vHTFDzxV
— EU2022_CZ (@EU2022_CZ) December 2, 2022
Why cap the price of oil?
The price cap, an idea of the Group of Seven (G7) nations, aims to slash Russia’s revenues from selling oil, while preventing a steep increase in international oil prices after an EU embargo on Russian crude takes effect on December 5.
The introduction of the cap means that participating countries will only be allowed to buy oil and petroleum products transported via sea that are sold at or below the price cap.
As the most important shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Russia to sell its oil at a higher price.
EU sees significant hit to Russian revenues
European Commission President Ursula von der Leyen said the price cap would significantly reduce Russia’s revenues.
However, the chair of the Russian lower house’s foreign affairs committee told the state news agency TASS that the bloc was jeopardising its own energy security.
It was also violating the laws of the market, claimed Leonid Slutsky.
But von der Leyen, the head of the EU’s executive, said on Twitter that “it will help us stabilise global energy prices, benefitting emerging economies around the world”, adding that the cap would be “adjustable over time” to react to market developments.
The EU agreement on an oil price cap, coordinated with G7 and others, will reduce Russia’s revenues significantly.
It will help us stabilise global energy prices, benefitting emerging economies around the world. pic.twitter.com/3WmIalIe5y
— Ursula von der Leyen (@vonderleyen) December 2, 2022
The White House welcomed the news that the EU was “coming together” on the oil price cap.
“A price cap will help limit Mr Putin’s ability to profiteer off the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” national security spokesman John Kirby told reporters.
‘Stopping Russia’s war machine’
Europe needed to set the discounted price that other nations will pay by Monday, when the EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies takes effect.
Poland long held up the agreement, seeking to set the cap as low as possible. Following more than 24 hours of deliberations, when other EU countries signalled they would back the deal, Warsaw finally relented.
“Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine,” Estonian Prime Minister Kaja Kallas said, adding that she was happy the cap was pushed down a few extra dollars from earlier proposals.
She said every dollar the cap was reduced amounted to $2bn less for Russia’s war chest.
I welcome the EU’s agreement on setting a price cap on Russian oil.
Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine.
I engaged personally in the negotiations as drying up Russian resources to wage war is an existential matter to us. 1/
— Kaja Kallas (@kajakallas) December 2, 2022
“It is no secret that we wanted the price to be lower,” Kallas added, highlighting the differences within the EU. “A price between 30-40 dollars is what would substantially hurt Russia. However, this is the best compromise we could get.”
The $60 figure sets the cap near the current price of Russia’s crude, which recently fell below $60 a barrel. There has been criticism that it is not low enough to cut into one of Russia’s main sources of income. It is still a big discount to international benchmark Brent, which slid to $85.48 a barrel on Friday, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.
Putin has previously warned that Russia would not sell oil under a price cap and would retaliate against nations that implement the measure.
Putin and Biden: Will they, or won’t they?
Meanwhile, it is unlikely that Putin and US President Joe Biden will be speaking anytime soon, about oil or the war in Ukraine.
Biden was not intending to speak to Putin right now, the White House said on Friday, a day after the US leader said he was willing to talk if his Russian counterpart was looking for a way to end the war.
Biden said on Thursday that he was prepared to speak with Putin “if, in fact, there is an interest in him deciding he’s looking for a way to end the war”. But he added that Putin “hasn’t done that yet”.
Kirby told reporters on Friday that “we’re just not at a point now where talks seem to be a fruitful avenue to approach right now”.
Kremlin spokesman Dmitry Peskov reiterated that Putin remains open to talks but the Western demand that Moscow first withdraws its troops from Ukraine is unacceptable.
Why rent is so expensive in Canadian cities (that aren’t Toronto or Vancouver)
When rent goes up, it often goes up most dramatically in major urban centers. And, sure enough, Toronto and Vancouver have consistently been in the spotlight as rental prices have skyrocketed over the last year. A two-bedroom apartment in the Ontario capital averaged $1,765 a month in 2022, while the same place in Vancouver soared to $2,002, according to the latest Canada Mortgage and Housing Corporation (CMHC).
But it isn’t just a problem for Canada’s biggest cities.
Across the country, high-interest rates have left would-be homeowners renting rather than buying, driving up demand in the rental market. Stable youth employment has also boosted demand, as has an uptick in net migration, the report said, given that young people and new immigrants tend to rent rather than buy.
But every region has its own unique factors driving up the cost of rent, from an improved economy in the West to the impact of students returning to campus in college towns.
Here’s a look at what’s happening in some of those other rental markets.
Janice Rourke, 67, recently received a notice that rent in her downtown apartment was going up nearly 24 per cent, an increase it blamed on the rising price of utilities, maintenance and other costs. (Alberta doesn’t have a cap on rent increases, though it does limit how often rent can be raised.)
“That was a huge surprise, when I saw the amount,” said Rourke, who is currently between jobs and said it will be a struggle to afford the new monthly bill.
She’s considered searching for a less expensive place, but says the prices of nearby apartments haven’t been much better.
In Calgary, the average price of a two-bedroom rental apartment grew six per cent last year to $1,466 a month, according to the CMHC.
“It’s getting harder and harder to find safe, affordable accommodation,” said Rourke.
Existing tenants like Rourke and those on the hunt for a first apartment are facing a tight rental market in Calgary these days. Last year, the city’s vacancy rate for purpose-built rentals dropped to 2.7 per cent, its lowest since 2014 when the previous oil boom of the early 2010s lured many people to Alberta.
Rental demand has, this time, again been buoyed by a record-high level of immigration and an uptick in “in-migration” — people moving to the province from elsewhere in Canada — lured by Alberta’s relative affordability and available jobs.
“This [provincial migration] is significant, because we haven’t seen this for a lot of years,” said Michael Mak, CMHC’s analyst for the region.
What makes today different from previous boom times, Mak said, is that the current economic growth isn’t entirely linked to strong commodity prices, though those certainly played a role. Employment has also grown in other sectors, especially technology.
“Nowadays, it’s a much more diversified economy,” said Mak.
The rental market in Kitchener-Cambridge-Waterloo, a cluster of three small cities some 90 kilometres southwest of Toronto, has been tight for several years, with a vacancy rate hovering around two per cent. In 2022, it dipped even further to 1.2 per cent, the region’s lowest in two decades.
Meanwhile, apartment rental prices grew by more than seven per cent — faster growth than the nearby markets of Toronto, Guelph and London, according to the CMHC report. The average price for a two-bedroom rental is now $1,469.
Sana Banu, a recent graduate of Conestoga College and president of the students’ union, recalls moving to the region in 2018 as an international student and easily finding a room to rent near the Kitchener campus.
“[Today,] there is no availability anymore within the vicinity of the campus,” said Banu.
The return of students to campus, after so much remote learning during the pandemic, has been among the drivers of the tight rental market, according to CMHC. The region is home to Conestoga College, Wilfrid Laurier University and the University of Waterloo.
While all students contribute to demand for rentals, Banu says international students are less likely than domestic students to have family near campus, and more likely to rent while they study.
The number of international students studying in Canada has been on the rise for years, and while their numbers dipped during the outset of the pandemic, the CMHC says there’s since been a “strong rebound” of study permits issued in Ontario.
The CMHC report says a surge in permanent resident admissions in the region has also likely contributed to demand for rentals, as has employment growth in its high-tech sector.
As rental options become fewer and farther between, Banu says more students are commuting from outside the region, couch surfing or piling multiple roommates into the same bedroom. As students become more desperate, she’s also concerned they’ll also be more likely to fall for rental scams.
“There is not enough supply for the demand that we have right now,” she said.
Both international and, increasingly, inter-provincial migration have contributed to high demand for rentals in Halifax. Nova Scotia gained 17,319 people from international migration and 14,079 from within Canada between July 2021 and July 2022, according to the province’s Department of Finance.
Halifax’s recent surge of in-migrants has been due to the province’s relatively low cost of housing and its reputation for handling the pandemic, along with the growing ability of workers to do their jobs remotely, according to the city’s economic development agency.
The CMHC report says in-migrants are generally less likely to rent and more likely to purchase homes, though this, too, has contributed to the high cost of renting.
“Local residents are having to stay in rentals longer just so that they can step up to buy a home,” said Kelvin Ndoro, CMHC’s analyst for the region.
After trending down for the last few years, the vacancy rate in Halifax held steady in 2022 at one per cent, said Ndoro. Meanwhile, the cost of rent shot up by roughly nine per cent, to an average of $1,449 for a two-bedroom apartment.
Amid that record-low vacancy rate, Chris Ryan, a Halifax property manager, says he gets between three to five inquiries a day from people asking if he has any inventory available.
“We’re just growing at a pace that real estate hasn’t caught up to yet,” he said.
Halifax, like Kitchener-Waterloo-Cambridge, has an abundance of post-secondary schools. And the post-pandemic return of students to campus — and international students in particular — has contributed to demand for rentals, the CMHC report noted.
International student enrolment has been on the rise there for years (aside from a dip during the pandemic), according to data from the Halifax Partnership. The economic development agency says the share of international students attending university in Halifax has grown from about 14 per cent of enrolments in 2011-12, to about 23 per cent in 2021-22.
Kyle Cook, vice-president of advocacy for the Saint Mary’s University Student Association, says the lack of student housing has left some in a precarious position.
“Often we’re hearing … that students are renting out their living rooms, hallways,and sometimes having to share two to three people in one room,” said Cook. “It’s something that is very common, especially over the last few years since COVID.”
As more people move into Halifax, others have left for nearby communities, in search of a more affordable place to live, Ndoro says.
Some young people are opting out of the rental market altogether, he said, instead choosing to live with their parents to save money.
There are differences in what’s fuelling rental demand throughout Canada, but also plenty of similarities. As interest rates go up, it becomes more difficult to buy, pushing more people to rent for longer.
People are also moving into Canada and within it — whether for school, work or in search of an affordable place to live — leading to heightened demand in various markets, even those where inexpensive apartments have historically been fairly easy to find.
There is also one major similarity in what is expected to solve the affordability problem: more housing supply.
“[The results of this report] reinforce the urgent need to accelerate housing supply and address supply gaps to improve housing affordability for Canadians,” the CMHC report said.
Bank of Canada to publish summary of interest-rate deliberations for the first time
The Bank of Canada contemplated not raising interest rates last month but with the economy outperforming expectations, its governing council ultimately decided in favour of one more rate hike before taking a pause.
In its first-ever summary of deliberations, the Bank of Canada pointed to a tight labour market, strong GDP growth and the risk of inflation getting stuck above two per cent as the rationale for raising its key rate by a quarter of a percentage point on Jan. 25.
The summary published Wednesday outlined what the council – made up of the governor and his deputies – discussed during meetings about the rate decision.
BMO managing director of Canadian rates and macro strategist Benjamin Reitzes said the biggest revelation from the summary was that the central bank was actually considering holding its key interest rate last month, suggesting it was taking a more tepid approach than markets had thought.
“The fact that they considered not raising rates was a little bit of a surprise,” Reitzes said.
But the Bank of Canada’s rationale for raising rates was exactly right, he added, noting the economy has been running hotter-than-expected.
“We’ve seen some signs of a slowdown, but not nearly enough to really warrant extreme concern at this point,” he said.
In December, Canada’s unemployment rate was five per cent, just above the record-low of 4.9 per cent reached in the summer. Economic growth has also beat expectations toward the end of 2022.
The Bank of Canada’s rate hikes are expected to be felt more broadly in the economy this year.
The governing council unanimously agreed that the central bank’s action to date had been aggressive and the full economic effects of rate hikes have not yet been felt.
“All governing council members acknowledged they were approaching this decision with a similar view: that the bank’s monetary policy to date had been forceful and that the full impact would be felt in quarters to come,” the summary said.
The central bank has hiked its key rate eight consecutive times since March 2022, bringing it from near zero to 4.5 per cent. That’s the highest it’s been since 2007.
With the first rate hike of the year, the central bank indicated that it would take a conditional pause to assess how the economy is responding to higher rates.
The summary also revealed that the Bank of Canada is concerned inflation might be stickier than expected.
“Persistence in supply chain challenges, services price inflation, wage growth and inflation expectations could all keep inflation above the target,” the summary said. “A rebound in oil prices could also push inflation back up again.”
Headline inflation has fallen from its peak of 8.1 per cent seen in June to 6.3 per cent in December. The Bank of Canada is forecasting the annual inflation rate will fall to three per cent by mid-2023 and to its two per cent target in 2024.
According to the summary, after some deliberation on what forward guidance the central bank should give, governing council members were in broad agreement to signal a pause to convey that the bar for raising rates further is now higher.
Reitzes said the summary makes it clear that a rate hike in March is “off the table.”
The release of the five-page summary follows a recommendation from the International Monetary Fund to increase transparency about the rate decision process.
It also provides a glimpse into what the Bank of Canada’s governing council considers when making policy decisions, something economists and forecasters often try to understand.
Reitzes said the summary was a welcome addition and “provided a little bit more colour around the policy decision.”
As the Bank of Canada monitors how the economy reacts to higher borrowing costs, the summary shows it is closely watching global and domestic economic developments.
The council spent a “considerable” amount of time discussing the potential effects of China lifting COVID-19 restrictions, according to the summary, with a particular concern about the effect the reopening could have on oil prices.
“If Chinese demand were to rebound by more than anticipated, oil prices could rise substantially, putting renewed upside pressure on Canadian and global inflation,” the summary said.
Domestically, the governing council noted declines in consumption and housing activity indicate the economy is slowing.
However, Statistics Canada’s preliminary estimate for real GDP in the fourth quarter suggests higher growth than the Bank of Canada’s previous expectations.
The central bank has also said Canada’s tight labour market is a sign of an overheated economy. In December, the unemployment rate was five per cent, just above the record-low of 4.9 per cent reached in the summer.
But the council is still encouraged by signs of inflation slowing.
In the summary, the council acknowledged that much of that slowdown is the result of lower gasoline prices, but members noted the decline in durable goods inflation suggests higher interest rates are working to slow demand.
This report by The Canadian Press was first published Feb. 8, 2023.
Ship-To-Ship Loadings Of Urals Hit Record High As Russian Oil Heads To Asia
Loadings of Russia’s flagship Urals crude using ship-to-ship (STS) transfers in the Mediterranean surged eight times in January from December to a record in the first full month in which the EU banned seaborne imports of Russian oil.
STS loadings, used by traders to move the crude from smaller tankers onto larger ones to make the journey to Asia profitable, have soared since the EU ban came into effect on December 5, according to data from Refinitiv Eikon cited by Reuters on Tuesday.
The key STS loading points in the Mediterranean are near Kalamata in Greek waters and near the Spanish port of Ceuta in the Strait of Gibraltar.
STS loadings in the Mediterranean hit an all-time high of 1.7 million tons in January, an eightfold surge compared to December, per Refinitiv Eikon data and Reuters calculations.
Since Urals is no longer being imported into the EU, cargoes are being diverted to Asia, mostly to India, China, and Singapore.
While the Urals crude is now finding a home outside Europe, the low price of Russia’s flagship grade is reducing Russian revenues from oil, due to the steep discount at which Urals trades relative to Brent Crude.
Russia’s budget revenues from oil and gas plunged in January by 46% compared to the same month last year. Russian budget revenues from energy sales – including taxes and customs revenues – plummeted last month to the lowest level since August 2020.
In January 2023, the price of Urals grade averaged 42% lower than in the same month of 2022, as its discount to Brent Crude grew wider following the EU embargo and the G7 price cap, which came into effect on December 5. The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, Russia’s Finance Ministry said last week.
Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources.
By Tsvetana Paraskova for Oilprice.com
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