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How Far Will Trump Go To Save U.S. Shale

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The U.S. is today showing signs of increased desperation as oil prices sink to levels that may pose a threat to the energy independence of the United States by kicking U.S. shale out of the market.

Several recent actions taken by the United States indicate that it may be attempting to change the current trajectory of the global oil market, including by showing interest in stepping up negotiations with Saudi Arabia, which is spearheading the ongoing market share war that is fostering ultra-low oil prices.

 Drastic Times Call for Drastic Measures  

The United States is facing a national emergency. The Covid-19 pandemic in the world’s largest oil consumer, The United States, has dented demand to the extent that a couple months ago, no one thought possible. The virus struck—first in the world’s largest oil importer, China–at a time when the oil markets were already concerned about a global oversupply.

The virus also struck around the same time that another critical oil-market event took place: the end of the OPEC+ production cut agreement and the start of the oil price war—with Saudi Arabia on one side and Russia on the other.

The result is that the U.S. shale industry, often touted as the backbone of the U.S. energy independence movement, has found itself caught in the middle between the oversupplied oil market and severely hampered oil demand.

And it looks like the government is getting worried.

Saudi Envoy

On Monday evening, the U.S. made the decision to appoint Victoria Coates as special energy representative to Saudi Arabia. While the United States insists that this was in the works for quite some time, even before the oil war began, the timing coincides rather nicely with the shocking price drop for the US crude grade West Texas Intermediate, which is now trading around $23 per barrel, down from $60-something per barrel at the beginning of the year. 

This $23 per barrel is not sustainable long term—perhaps not even short term—creating a sense of urgency in the United States to address the problem.

And who better to address than the perceived perpetrator of the oil price war, Saudi Arabia.

At the beginning of the oil price slide, the Trump Administration was singing the praises of the low oil prices. For consumers in the United States, lower oil prices mean an easing of cost of living expenses, freeing up money to spend on other things, and bolstering the economy in the process. This is all positive for consumers.

But it became clear rather quickly that oil prices were sinking far too low to be sustainable for the oil industry, and for the economy. Low gasoline prices mean very little when people aren’t leaving their homes to drive anywhere, as is the case now for nearly half of all Americans, so the single benefit of low oil prices will not be realized. These stay-at-home restrictions and lack of call for gasoline are contributing to the lack of demand and helping to push prices even lower.

The government has since shown signs of its panic—oil prices are too low, and something must give, and soon. That “something”, the U.S. hopes, will be Saudi Arabia.

Enter Victoria Coates.

When United States announced this week that it had appointed a new special energy envoy to Saudi Arabia, the Administration said it was “to ensure the Department of Energy has an added presence in the region.”

Coates was a critical component of the negotiations with Iran and Trump’s Middle East policy creation during her time at the White House, which ended in February when she moved to the Department of Energy.

The announcement comes about a week after President Trump, at a coronavirus briefing, said the U.S. would intervene in the oil war, stressing the U.S. had “a lot of power over the situation” and was “trying to find some kind of medium ground.”

Despite the timing, the U.S. is not owning the fact that Coates’ new assignment and the oil price war have any noteworthy link.

Lawmakers Out for Blood

But the move comes after intense pressure from U.S. lawmakers and others in the industry in recent weeks, some of who have urged President Trump to take the extreme stance of embargoing Russian and Saudi Arabian oil. Other calls to action include the Texas Railroad Commission’s suggestion to use pro-rationing that would force Texas producers to curb production—something that is unthinkable in America.

Mississippi Senator Roger Wicker and Oklahoma Senator Inhofe asked the Department of Commerce to slap a tariff on foreign oil, citing national security reasons.

Other ideas include outright conspiring—albeit in a somewhat unofficial capacity—with Saudi Arabia to coordinate production.

These rare developments and proposals all indicate one thing: the oil price war is hurting U.S. shale, and the government is worried. Energy security, energy dependence, and a significant portion of the economy are all riding on U.S. shale’s ability to outlast Saudi Arabia or Russia in the oil price war.

And while U.S. shale was the one to show remarkable fortitude the last time Saudi Arabia tried to squeeze it out of the market, the coronavirus component this time around, combined with what many see as an unhealthy debt load, have led to some question whether U.S. shale has what it takes this time around.

By Julianne Geiger for Oilprice.com

Edited by Harry Miller

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China shows strong factory activity in March – MarketWatch

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BEIJING–An official gauge of China’s manufacturing activity rebounded strongly in March as factory production resumed after the coronavirus epidemic was largely put under control in the country.

The official manufacturing purchasing managers’ index rose to 52.0 in March from a record low of 35.7 in February, the National Bureau of Statistics said Tuesday. The 50 mark separates expansion of activity from contraction.

The March result came in above the median forecast of 51.5 by economists surveyed by The Wall Street Journal. Purchasing by manufacturers is a leading indicator of business activity because factories buy supplies in anticipation of demand.

The statistics bureau said the reading only reflects work resumption from February and it doesn’t mean China’s economic activity has returned to normal.

The production subindex climbed to 54.1 from 27.8 in February. The new-export-orders subindex, a gauge of external demand, rose to 46.4 in March from 28.7 in February. The subindex measuring imports increased to 48.4 from February’s 31.9.

The government has rolled out a slew of measures to help factories resume production and retain workers, including offering tax cuts and cash returns. The People’s Bank of China on Monday lowered a key interest rate in the country’s interbank market, the latest effort by Beijing to restart an economy struggling to recover due to the coronavirus.

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Most actively traded companies on the TSX – Yahoo Canada Finance

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TORONTO — Some of the most active companies traded Monday on the Toronto Stock Exchange:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Toronto Stock Exchange (13,038.50, up 350.76 points.)” data-reactid=”13″>Toronto Stock Exchange (13,038.50, up 350.76 points.)

Bombardier Inc. (TSX:BBD.B). Industrials. Down three cents, or 6.59 per cent, to 42.5 cents on 17.5 million shares.

Suncor Energy Inc. (TSX:SU). Energy. Up $2.54, or 15.46 per cent, to $18.97 on 15.6 million shares.

Canadian Natural Resources Ltd. (TSX:CNQ). Energy. Up $2.40, or 18.02 per cent, to $15.72 on 15.5 million shares.

Aurora Cannabis Inc. (TSX:ACB). Health care. Down 17 cents, or 11.64 per cent, to $1.29 on 15.2 million shares.

Cenovus Energy Inc. (TSX:CVE). Energy. Up six cents, or 2.55 per cent, to $2.41 on 11.4 million shares.

MEG Energy Corp. (TSX:MEG). Energy. Up 27 cents, or 22.13 per cent, to $1.49 on 11.4 million shares.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Companies in the news:” data-reactid=”20″>Companies in the news:

Transat AT. (TSX:TRZ). Down 74 cents or 7.8 per cent, to $8.75. The Competition Bureau’s warning about Air Canada’s proposed takeover of Transat AT Inc., which owns Air Transat, should be taken in context, analysts say. The watchdog said Friday that eliminating the rivalry between the two Montreal-based carriers would discourage competition by prompting higher prices and fewer services. Desjardins Securities analyst Benoit Poirier said he believes the purchase will still be approved “considering the companies’ willingness to address the bureau’s competition concerns,” such as potential dominance of airport slots.

Canadian Imperial Bank of Commerce (TSX:CM). Up $1.33 to $79. An Ontario Superior Court judge has ruled against the CIBC in an overtime class-action lawsuit filed more than a decade ago. Judge Edward Belobaba found the bank liable for breaching its overtime obligations to a class of about 31,000 current and former tellers, personal bankers and other front-line workers in branches across Canada.

Canadian Apartment Properties Real Estate Investment Trust. (TSX:CAR.UN). down 23 cents to $41.90. Some of Canada’s biggest landlords say they’re committed to working with tenants who have lost their job because of the coronavirus pandemic. Mark Kenney, CEO of Canadian Apartment Properties Real Estate Investment Trust, says the company is committed to working with those who have suddenly lost their job, and is “violently against” evicting anyone who’s in distress.

Freshii Inc. (TSX:FRII). Down one cent to $1.23. Freshii Inc. is delaying the filing of its latest financial results as it deals with the COVID-19 pandemic and its impact on its restaurants and franchise partners. The company says it has also temporarily “streamlined its head office workforce” in a move to cut costs. It did not say how many people were affected. Freshii says the COVID-19 pandemic is expected to have a material impact on its business, operations and financial performance for at least the first half of 2020.

Parkland Fuel Corp. (TSX:PKI). Up 85 cents or 3.5 per cent to $25.05. Parkland Fuel Corp. is cutting its 2020 capital spending budget by 52 per cent and trimming executive salaries in response to the uncertain economic impact of the novel coronavirus. The Calgary-based company, which sells fuel through more than 2,600 service stations throughout Canada and in the United States and Caribbean, says it plans to spend $275 million this year, down from its earlier guidance of $575 million.

Air Canada (TSX:AC). Down 67 cents or four per cent to $1608. Air Canada will temporarily lay off more than 15,000 unionized workers beginning this week as the airline struggles with fallout from the COVID-19 pandemic. The layoffs will continue through April and May amid drastically reduced flight capacity from the Montreal-based airline. Air Canada says the two-month furloughs will affect about one-third of management and administrative and support staff, including head office employees, in addition to the front-line workers.

This report by The Canadian Press was first published March 30, 2020.

The Canadian Press

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Air Canada To Furlough 16,500 Employees And Slash Capacity – Simple Flying

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From April 3rd, Air Canada will furlough 16,500 employees. This comes as the airline slashes capacity by 85-90% and faces the unprecedented COVID-19 pandemic.

Air Canada is furloughing 16,500 employees. Photo: Air Canada

Air Canada to furlough 16,500 staff

From April 3rd, Air Canada announced that it will have to furlough employees due to the “unprecedented impact of COVID-19.” This will include 15,200 of its unionized workforce moving to “Off Duty Status” while another 1,300 managers will face a furlough. These are temporary measures according to the airline. Although, given the fluctuating nature of the situation, it is really anyone’s best guess when Air Canada will return to full operations.

President and CEO Calin Rovinescu had the following comment on the situation:

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“The unpredictable extent and duration of the Covid-19 pandemic requires a significant overall response.  To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while.”

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Air Canada staff
The furlough is intended to be temporary. Photo: Air Canada

In addition to these furloughs, Air Canada is taking other steps. It ended the share repurchase program on March 2nd, engaged in company-wide cost reduction and capital deferral program which saves about $500 million CAD, drawing down operating lines of credit to the tune of $1 billion CAD, and cutting salaries of executives. The CEO and Deputy CEO will cut their salaries by 100% while the Board of Directors will cut theirs by 25%. Senior Executives will cut 25-50% of their salary. Meanwhile, Air Canada managers will cut their salaries by 10% for the entire second quarter.

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In addition to the furloughs, Air Canada is taking other steps to preserve its cash. Photo: Air Canada

Significant capacity reductions at Air Canada

Amid the ongoing crisis, Air Canada will cut its capacity in the second quarter of 2020 by 85-90% compared to operations in the same time last year. With so few flights operating, it makes sense for Air Canada to furlough some staff until capacity can be restored.

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In response to the crisis, operations have taken a huge hit. Photo: Air Canada

Repatriation flights

However, one place where Air Canada has been a leader in Canada is repatriation flights. The airline has devoted a number of resources to bringing Canadians home from abroad.

Air Canada crew
The Air Canada crew which operated a rescue flight from Casablanca. Photo: Air Canada

In the coming days, the flag carrier will likely work with the Canadian government to issue more repatriation flights. Organizing these flights have a lot of pieces. Governments have to coordinate to bring citizens to and from airports, the airline has to schedule crews and implement cleaning and sanitation procedures, and health agencies have to monitor and work with the passengers coming home in order to reduce the spread of COVID-19.

Overall

For 16,500 Air Canada employees, this cannot be an easy time. The situation is incredibly fluid and it is unclear how long these furloughs will last and whether more will be necessary as the airline seeks to survive with significantly reduced operations.

What do you make of Air Canada’s furloughs? Let us know in the comments!

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