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How Biden's Huge Strategic Oil Release Could Backfire – OilPrice.com

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How Biden’s Huge Strategic Oil Release Could Backfire | OilPrice.com


Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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  • President Biden’s huge SPR release announcement has pushed WTI prices back below $100.
  • SPR release may calm crude prices only in the short term.
  • U.S. SPR may need to be replenished at higher oil prices.

SPR

This week, the Biden administration revealed that it will release as much as 180 million barrels of crude oil in a bid to calm oil prices, which have remained above $100 per barrel for an extended period of time. The International Energy Agency, meanwhile, is coordinating a smaller but international reserve release of some 60 million barrels and has called an emergency meeting to discuss how exactly to go about it. 

It remains unclear whether part of the 180 SPR release in the United States will be a completely separate endeavor or if some of these barrels will be part of the IEA release. Earlier this year, the U.S. had agreed to release 30 million barrels as part of the IEA push. What is clear is that the success of these releases in calming down oil prices is quite unlikely.

The United States last year announced the release of 50 million barrels in an effort to bring down prices t the pump, which were eroding Americans’ purchasing power and weighing on the President’s approval ratings. 

This pressured prices for a few days before they rebounded, driven by continued discipline among U.S. producers, equal discipline in OPEC+, and a relentless increase in demand for the commodity.

Then Russia invaded Ukraine, and the U.S. banned imports of Russian crude and fuels. It also sanctioned the country’s financial system heavily, making paying for Russian crude and fuels too much of a headache for the dollar-based international industry. Prices soared again before retreating some, but remain firmly in three-digit territory.

Related: Why We Cannot Just “Unplug” Our Current Energy System

As of mid-March, the Department of Energy said, some 30 million barrels of crude from the strategic petroleum reserve had been sold or leased. That’s more than half of the 50 million barrels announced in November, and it appears to have had zero effect on price movements.

But the new reserve release is a lot bigger, so it should make a difference, shouldn’t it? It amounts to some 1 million bpd over several months, per reports about White House plans in this respect. Unfortunately, but importantly, oil’s fundamentals have not changed much since November.

U.S. shale oil producers, the companies that a few years ago prompted talk among analysts that OPEC was becoming increasingly irrelevant, have rearranged their priorities. They no longer strive for growth at all costs. Now they strive for happy shareholders.

This has given more opportunities to smaller independent drillers with no shareholders to keep happy. Yet these have also run into challenges, mainly in the form of insufficient funding because the energy transition has had banks worrying about their reputations and their own shareholders.

Pandemic-related supply disruptions have also affected the U.S. oil industry’s ability to expand output. Frac sand, cement, and equipment are among the things that have been reported to be in short supply in the shale patch. Now, there’s a shortage of steel tubing, too.

Meanwhile, OPEC is doing business as usual, sticking to its commitment to add some 400,000 bpd to oil markets every month until its combined output recovers to pre-pandemic levels. Just this week, the cartel approved another monthly addition of 432,000 bpd to its combined output despite increasingly desperate calls from the U.S. and the IEA for more barrels.

OPEC has been demonstrating increasingly bluntly that its interests and the interests of some of its biggest clients may not be in alignment right now. It has refused to openly condemn Russia for its actions in Ukraine and has not joined the Western sanction push. Related: U.S. Oil Demand Has Been Vastly Overestimated

On the contrary, OPEC is gladly doing business with Russia. And Saudi Arabia and the UAE, the two OPEC members that actually have the capacity to boost production beyond their quotas, have deemed it unwise to undermine their partnership with Russia by acquiescing to the West’s request for more oil.

In this environment, releasing whatever number of barrels from strategic reserves could only provide a very short relief at the pump. Then, it may make matters even worse. As one oil market commentator on Twitter said about the SPR release news, the White House will be selling these barrels at $100 and then may have to buy them at $150.

Indeed, one thing that tends to get overlooked during turbulent times is that the strategic petroleum reserve of any country needs to be replenished. It’s not called strategic for laughs. And a 180-million-barrel reserve release will be quite a draw on the U.S. SPR, which currently stands at over 580 million barrels. If oil’s fundamentals remain the same, prices will not be lower when the time to replenish the SPR comes.

This seems the most likely development. The EU, the UK, and the United States have stated sanctions against Russia will not be lifted even if Moscow strikes a peace deal with the Ukraine government. This means Russian oil will continue to be hard to come by for those dealing in dollars or euros.

According to the IEA, the shortfall could be 3 million barrels daily, to be felt this quarter. OPEC+ is not straying from its course. In some good news, at least, U.S. oil production rose last week for the first time in more than two months, by a modest 100,000 bpd.

By Irina Slav for Oilprice.com

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Some Quebecers won't have their power back until this weekend, Hydro-Québec says – CBC.ca

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Hydro-Québec says crews are still working on restoring power to more than 80,000 customers in the province and that it could take until this weekend to get everyone back on the grid. 

Thousands of residents have been left in the dark since Saturday following a fierce spring storm that swept across large swaths of the province, downing trees and power lines. 

The most affected region remains the Laurentians, where roughly 50,000 customers are still without electricity.  As of Wednesday afternoon, some 18,000 customers in the Lanaudière were without power and more than 15,000 in the Outaouais.

At a news conference Wednesday in Morin-Heights, a small, hard-hit town in the Laurentians, Hydro-Québec president and CEO Sophie Brochu said crews are working “as quickly as possible” to restore power to all households. 

“We will not leave until everyone has been reconnected,” she told reporters. 

WATCH | Hydro-Québec president explains when power will be restored: 

Crews are working ‘as fast as we can,’ says Hydro-Québec president

8 hours ago

Duration 0:45

Sophie Brochu says more crews are expected to be deployed to remote regions to help restore power to affected households, with the goal of being “really far” into the process as of Saturday.

Brochu said the public utility has about 700 crews — or 1,400 people — working around the clock, including crews from private contractors, regions that haven’t been affected by the outages and even some from New Brunswick. 

Régis Tellier, vice-president of operations and maintenance at Hydro-Québec, said he hopes to have 50,000 customers reconnected by the end of the day, “but we cannot hope to reconnect all customers before Friday, perhaps even beyond.”

Residents kept in the dark, says mayor

Morin-Heights was battered by Saturday’s storm. Trees were seen toppled over cars and on roofs, and power lines littered the streets.

Mayor Tim Watchorn said as of Wednesday, 75 per cent of residents are still without power. And while the public utility is urging patience, he said people in the community are starting to feel frustrated.

“[Hydro-Québec] can’t give us a timeline as of now,” he said. “People find it difficult not knowing.”

Mayor Tim Watchorn says 75 per cent of Morin-Heights residents are still without power. (Marika Wheeler/CBC)

Because many residents rely on wells, even showering and using the washroom is impossible for some. With no internet, phones or stoves, many are left feeling cut off from the world.

“It’s hard to not know what’s happening and when you’re going to get your power back,” Watchorn said. 

Chalet Bellevue, the local community centre, has been transformed into an emergency shelter since the weekend storm.  A generator has been hooked up allowing people to charge their phones, cook, get water and take showers.

On Wednesday, Patricia Clark was at the community centre trying to download books to read on her iPad. She was grateful to finally plug back in since she hasn’t had power in her home since Saturday afternoon.

“It was very painful throwing out everything in the fridge and the freezer … but Morin-Heights has been excellent though, they give you, you know, everything.”

Downed trees, terrain causing delays 

Hydro-Québec says the size of the affected area is a key reason for the delays in getting the light backs on. 

The violent storm hit a portion of territory 300 kilometres long by 100 kilometres wide, according to Brochu, ranging from the Outaouais to Quebec City.

She said half a million customers lost power within three to four hours and more than 554,000 customers were without electricity at the height of the event. 

“It was crazy,” she said. “Since the ice storm, that’s pretty much the biggest event we’ve seen.” 

Brochu said the complex nature of the work to be done in some regions could also pose risks and create complications, causing further delays. 

Some 700 Hydro-Québec crews, or 1,400 people, are working to restore power across the province.

Crews must remove power lines that have fallen to the ground under the weight of uprooted trees, replace hundreds of poles and navigate difficult terrain that sometimes prevents work trucks from getting to the affected areas, she said. 

Brochu said repairs in remote areas only restore service to a small number of customers at a time, hence the plateau in the number of customers regaining power. 

“We know you’re there, we’re going to work as hard and as fast as we can,” she assured residents. 

As of Wednesday afternoon, more than 470,000 customers had had their power restored. The power is back on for all households in the Mauricie, Quebec City and Montreal regions.

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Stock market news live updates: Stocks end choppy session higher after FOMC minutes – Yahoo Canada Finance

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U.S. stocks pushed higher at the close of a choppy session on Wednesday as investors considered a slew of company warnings on the impact of inflation to earnings alongside the Federal Reserve’s latest communications about using their policies to rein in rising prices. The Fed’s May meeting minutes reaffirmed that central bank officials saw additional 50 basis point rate hikes as appropriate over the next couple meetings.

The S&P 500 wobbled but then gained Wednesday afternoon after the release of the Fed minutes, which also noted that more aggressive tightening and “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and risks to the outlook.” The Dow and Nasdaq each also rose. Treasury yields mostly declined, and the benchmark 10-year yield fell to hold just above 2.75%.

Investors this week have also eyed a growing list of companies citing the effects that inflation have had and will have on results going forward. Retailers including from Walmart and Target last week to Dick’s Sporting Goods (DKS) and Abercrombie & Fitch (ANF) this week slashed their earnings forecasts for the year as the companies absorbed rising goods and transportation costs. And elsewhere, Snap (SNAP) warned earlier this week that it would post weaker-than-expected sales and profit results this year as the macroeconomic environment “deteriorated further and faster than anticipated.” This was taken as a harbinger of softer results for a bevy of ad-driven tech stocks, sending the Nasdaq Composite to its lowest close since Nov. 2020 on Tuesday.

As the grim company guidance piles up, Wall Street has been looking for signs that the Federal Reserve’s interest rate hikes and monetary policy tightening will achieve bringing down inflationary pressures. The Fed’s minutes from its early May meeting Wednesday afternoon reaffirmed that most monetary policymakers were considering rolling out additional 50 basis point rate hikes at the next two Fed meetings. The Fed raised rates by 50 basis points earlier this month for the first time since 2000, after having raised rates by just 25 basis point earlier this year.

“The challenge right now is we’re in this new chapter of the inflation story. If you’ll recall, last year it started with whether it’s transitory — turns out, it wasn’t. Then it became about the Fed at the end of last year and earlier this year, whether or not they would tighten significantly. And they did, and now all that’s priced in,” James Liu Clearnomics founder and CEO, told Yahoo Finance Live. “And now what the market is looking at is are basically the fundamentals around how inflation affects corporate profitability and consumer demand.”

And beyond the domestic concerns, a myriad of international concerns — from Russia’s war in Ukraine, to China’s ongoing COVID outbreak — have further infused volatility into the market.

“The Fed can’t really do anything about what’s going on between Russia and Ukraine, they can’t really do anything about China’s COVID zero policies … and a lot of traders are starting to get concerned,” Shawn Cruz, TD Ameritrade head trading strategist, told Yahoo Finance Live.

“The way the market to me is reacting to that, is one, there’s de-leveraging going on. There are some liquidation events out there as well, and that is one of those ‘selling begets more selling’ type of environments. And then the other one is, there’s just not enough confidence out there to come in there and meaningfully put money back to work,” he added. “Once you start to see leverage start going back up, cash coming in from the sidelines, that to me would be an indication that there is at least a little bit more certainty in the outlook for a lot of these people on the sidelines to come back in.”

4:05 p.m. ET: Stocks end choppy session higher after Fed minutes: Nasdaq gains 1.5%, Dow adds 192 points, or 0.6%

Here were the main moves in markets as of 4:05 p.m. ET:

  • S&P 500 (^GSPC): +37.25 (+0.95%) to 3,978.73

  • Dow (^DJI): +191.66 (+0.60%) to 32,120.28

  • Nasdaq (^IXIC): +170.29 (+1.51%) to 11,434.74

  • Crude (CL=F): +$0.97 (+0.88%) to $110.74 a barrel

  • Gold (GC=F): -$11.80 (-0.63%) to $1,853.60 per ounce

  • 10-year Treasury (^TNX): -1.1 bps to yield 2.7490%

2:15 p.m. ET: Fed minutes show support for another two half-point rate hikes while adding ‘a restrictive stance of policy’ could become appropriate

The Federal Reserve’s latest meeting minutes Wednesday afternoon reaffirmed Fed Chair Jerome Powell’s prior assertions that the central bank was weighing two more half-point rate hikes.

“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” according to the minutes. “Many participants assessed that the Committee’s previous communications had been helpful in shifting market expectations regarding the policy outlook into better alignment with the Committee’s assessment and had contributed to the tightening of financial conditions.”

The Fed left room for further policy decisions to be informed by incoming data on the economy, which has recently softened. However, it also emphasized that its primary goal remained on bringing down inflation, and that as a result, a “restrictive stance of policy” could be needed.

“Participants agreed that the economic outlook was highly uncertain and that policy decisions should be data dependent and focused on returning inflation to the Committee’s 2% goal while sustaining strong labor market conditions,” the minutes noted. “At present, participants judged that it was important to move expeditiously to a more neutral monetary policy stance. They also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”

11:11 a.m. ET: Stocks extend gains, Nasdaq rises by 1%

Here were the main moves in markets as of 11:11 a.m. ET:

  • S&P 500 (^GSPC): +23.35 (+0.59%) to 3,964.83

  • Dow (^DJI): +87.30 (+0.27%) to 32,015.92

  • Nasdaq (^IXIC): +110.02 (+0.98%) to 11,374.47

  • Crude (CL=F): +$0.22 (+0.20%) to $109.99 a barrel

  • Gold (GC=F): -$17.20 (-0.92%) to $1,848.20 per ounce

  • 10-year Treasury (^TNX): -0.9 bps to yield 2.7510%

9:31 a.m. ET: Stocks open lower before shaking off losses

Here were the main moves in markets as of 9:31 a.m. ET:

  • S&P 500 (^GSPC): -9.53 (-0.24%) to 3,931.95

  • Dow (^DJI): -114.27 (-0.36%) to 31,814.35

  • Nasdaq (^IXIC): -22.24 (-0.20%) to 11,242.21

  • Crude (CL=F): +$0.89 (+0.81%) to $110.66 a barrel

  • Gold (GC=F): -$13.90 (-0.75%) to $1,851.50 per ounce

  • 10-year Treasury (^TNX): -2.6 bps to yield 2.7340%

9:12 a.m. ET: Durable goods orders disappoint in April

U.S. durable goods orders decelerated in April and were downwardly revised in March, offering an at least early sign that businesses may be pulling back on investments as economic uncertainties mount.

Orders for durable goods, or manufactured products intended to last at least three years, rose by 0.3% in April compared to March, the Commerce Department said Wednesday. This came in below the 0.6% rate consensus economists were expecting, according to Bloomberg data. In March, durable goods orders rose by 0.6%, with this rate revised down from the 1.1% previously reported.

Non-defense capital goods orders excluding aircraft also missed expectations, rising by 0.3% in April versus the 0.5% anticipated. This metric rose by 1.1% in March, and serves as a closely watched proxy for business investment. Still, non-defense capital goods shipments excluding aircraft, which factors into GDP, rose by a better-than-expected 0.8% last month.

“It’s entirely possible that the recent slowing is nothing more than a temporary reaction to the spike in energy prices; firms might be waiting to see how consumers respond,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in an email about the report. “So far, we see no evidence of any hit — housing excepted — but we also can’t rule out the idea higher rates are directly causing some capex [capital expenditures] to be deferred, even though firms are sitting on huge piles of cash accumulated during the pandemic.”

“For now, a decent increase in capital spending on equipment in the second quarter seems assured, given the lags from previous strength in orders, but the outlook for H2 has become a bit more cloudy,” he added.

7:55 a.m. ET: Dick’s Sporting Goods becomes latest retailer to slash full-year outlook given ‘evolving macroeconomic conditions’

Dick’s Sporting Goods shares sank by more than 14% Wednesday morning after the retailer became one of the latest to lower its full-year earnings and sales guidance as economic uncertainty resurged.

The sporting goods retailer said it now sees adjusted earnings totaling between $9.15 and $11.70 per share for the 2023 fiscal year, with this range coming in well below the $11.70 to $13.10 a share seen previously. Comparable store sales will likely fall between 2% and 8% this year, the company added, compared to a prior outlook for sales to come in between unchanged and down 4%. Dick’s Sporting Goods said it updated its outlook “to reflect the impact of evolving macroeconomic conditions,” according to its earnings release Wednesday morning.

Following the release, the stock was on track to post a sixth straight day of losses, or its longest losing streak since early Dec. 2021, as shares fell in sympathy with other major retailers over the past week.

7:23 a.m. ET: Stock futures edge lower

Here’s where markets were trading Wednesday morning:

  • S&P 500 futures (ES=F): -5.25 points (-0.13%) to 3,935.25

  • Dow futures (YM=F): -55 points (-0.17%) to 31,825.00

  • Nasdaq futures (NQ=F): -9.5 points (-0.08%) to 11,761.50

  • Crude (CL=F): +$1.47 (+1.34%) to $111.24

  • Gold (GC=F): -$14.10 (-0.76%) to $1,851.30 per ounce

  • 10-year Treasury (^TNX): -2.6 bps to yield 2.734%

NEW YORK, NEW YORK - MAY 23: Traders work on the floor of the New York Stock Exchange (NYSE) on May 23, 2022 in New York City. After a week of steep losses, markets were up in Monday morning trading.  (Photo by Spencer Platt/Getty Images)NEW YORK, NEW YORK - MAY 23: Traders work on the floor of the New York Stock Exchange (NYSE) on May 23, 2022 in New York City. After a week of steep losses, markets were up in Monday morning trading.  (Photo by Spencer Platt/Getty Images)

NEW YORK, NEW YORK – MAY 23: Traders work on the floor of the New York Stock Exchange (NYSE) on May 23, 2022 in New York City. After a week of steep losses, markets were up in Monday morning trading. (Photo by Spencer Platt/Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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Bankers buck gloomy trend by forecasting growth amid concerns about economic slowdown – The Globe and Mail

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Bank of Montreal reported a modest increase in second-quarter profit on Wednesday.Nathan Denette/The Canadian Press

Top executives at two major Canadian banks predict they can keep adding new loans and increasing profits in the coming quarters, offering an optimistic outlook for the financial sector that is at odds with economists’ increasingly gloomy forecasts of a downturn ahead.

Bank of Nova Scotia BNS-T and Bank of Montreal BMO-T both reported higher second-quarter profits on Wednesday, underpinned by robust demand for personal and commercial loans as well as lower loan loss reserves than analysts anticipated. Profits increased 12 per cent compared with those in the same quarter a year earlier at Scotiabank, and 4 per cent after adjustments at BMO, as rising interest rates helped increase margins on loans.

Growth slowdown fears temper bullishness on commodity currencies

Canada considers new measures to protect economy from national security threats

That marked a strong start to the major banks’ earnings season, but analysts cautioned those results, which cover the three months ended April 30, already look distant in the rear-view mirror. They pressed senior executives about how the banks are bracing for a deteriorating economic environment marked by war in Ukraine, high inflation, rapid central bank rate hikes and the increasing prospect of a recession that could curb customers’ appetite to borrow.

Bank chief executives and finance chiefs stressed they still expect economies to grow as COVID-19-related headwinds ease. They noted that most households are in good financial health, as many stashed away extra savings during the pandemic, while unemployment remains low in a tight labour market. Businesses are borrowing to bulk up inventories as demand for products outstrips supply, and some sectors, such as commodities, are booming.

“The macroeconomic backdrop for our key geographies remains positive,” said Scotiabank chief executive Brian Porter, on a conference call with analysts on Wednesday. “Despite the macroeconomic and geopolitical uncertainties in recent months, we are encouraged by the resilience of our businesses.”

The mood among economists is much more downbeat as the threat of a global recession mounts, even though few are predicting that is highly likely. The tone has also been sombre as business leaders and policy makers rub elbows at the World Economic Forum’s gathering in Davos. And the former governor of Canada’s central bank, Stephen Poloz, recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.

Yet increases in banks’ loan balances have been broad-based, and BMO chief financial officer Tayfun Tuzun said in an interview that he still expects “high-single-digit loan growth” year over year – the same guidance he gave three months ago.

“All in all our clients are telling us that they’re still interested in investing in their businesses,” said Mr. Tuzun. He added that there are “a lot of good indicators for what’s to come” for the bank.

A particular bright spot is commercial lending in Canada, where loan balances rose 13 per cent at BMO and 19 per cent at Scotiabank in the second quarter. Scotiabank’s chief financial officer, Raj Viswanthan, said corporate clients and consumers have “very strong” balance sheets at the moment, “so we see a lot of pent up demand.”

Mortgage balances rose 16 per cent year over year at Scotiabank, benefitting from the tail end of a red-hot streak for housing markets.Chris Young/The Canadian Press

The disruptions caused by COVID-19 and war in Ukraine have also increased demand in key areas, Mr. Viswanathan said. “It’s supply chain issues, it’s the rise of e-commerce, it’s the demand for food.”

Bankers aren’t blind to the gathering economic storm clouds. BMO chief risk officer Pat Cronin said his bank is giving greater weight to a hypothetical scenario that predicts the impact of a severe downturn, and has lowered expectations for parts of its forecast it considers the base case.

When U.S. banking giant JPMorgan Chase & Co. hosted an investor day this week, chief executive Jamie Dimon summed up the outlook as, “strong economy, big storm clouds,” saying those clouds “may dissipate. If it was a hurricane, I would tell you that.” But he acknowledged “they may not dissipate, so we’re not wishful thinkers.”

The Bank of Canada published a paper this month that suggests the country’s banks are strong enough and well capitalized to withstand even a severe, prolonged downturn in which unemployment peaks at 13.5 per cent and house prices fall 29 per cent.

Gabriel Dechaine, an analyst at National Bank Financial Inc., wrote to clients that, “in a normal environment, such optimism would be met with positive expectations for stock price appreciation,” but he remains “more cautious … as long as the disruptive forces of inflation that heighten recession expectations persist.”

In the fiscal second quarter, Scotiabank earned $2.75-billion, or $2.16 per share, compared with $2.46-billion, or $1.88 per share, in the same quarter last year. Adjusted to exclude certain items, Scotiabank said it earned $2.18 per share, well above the consensus estimate of $1.98 per share among analysts, according to Refinitiv.

In the same quarter, BMO earned $4.76-billion, or $7.13 per share, compared with $1.3-billion, or $1.91 per share, a year earlier. After adjusting to exclude one-time items that include a $2.6-billion gain on a financial instrument tied to BMO’s US$16.3-billion acquisition of California-based Bank of the West, profit was $2.187-billion, or $3.23 per share. On average, analysts expected $3.24 per share on an adjusted basis.

Former Bank of Canada governor Stephen Poloz recently predicted the country is heading for a period of stagflation – a mix of slow growth and high inflation.Sean Kilpatrick/The Canadian Press

Both banks raised their quarterly dividends, by 3 cents per share to $1.03 at Scotiabank, and by 6 cents per share to $1.39 at BMO.

Two key factors that have supported banks’ rising profits through much of the pandemic – rapidly rising mortgage balances and unusually low losses from defaulting loans – appear to have reached peaks, and are set to return to more normal levels.

Mortgage balances rose 16 per cent year over year at Scotiabank and 8 per cent at BMO, benefitting from the tail end of a red-hot streak for housing markets. But that yearly growth rate is “slowly slowing,” said Dan Rees, Scotiabank’s head of Canadian banking, and is likely to revert to a pace in the range of 6 to 9 per cent in the coming quarters even as some economists are predicting housing prices will fall.

Provisions for credit losses – the funds banks set aside to cover losses in case loans default – “reached the floor this quarter,” said Phil Thomas, Scotiabank’s chief risk officer. He and his BMO counterpart, Mr. Cronin, expect loan loss reserves will gradually drift higher. But with write-offs and delinquencies still very low, neither risk officer is predicting a spike in loan losses, even though it will rapidly get more expensive for consumers to service their debts.

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