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Oil Dips as 2019 Ends; Big Gains on Year

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Oil Dips
© Reuters.

Investing.com – Oil prices fell on the last day of 2019, but still rounded the year out with the biggest annual gains in three. A rebound forecast in U.S. shale crude production could, however, pose greater challenges for the market in 2020.

New York-traded , the U.S. crude benchmark, settled down 62 cents, or 1.0%, at $61.06 per barrel. Despite that drop, WTI rose 11% for December, its largest monthly gain since January.

London-traded , the global oil benchmark, settled down 67 cents, or 1%, at $66.65 per barrel. Notwithstanding Tuesday’s slide, the U.K. crude standard settled up 7% for December, its largest monthly advance since April.

For the year, WTI rose 34% while Brent had a 24% gain, the biggest annual gains since 2016 for both benchmarks.

Oil’s 2019 rally was largely helped by production cuts carried out by OPEC. Since January, the Saudi-led OPEC, joined by its ally Russia under the OPEC+ alliance, has tried to observe a daily production cut of 1.2 million barrels. In December, as that arrangement was about to expire, OPEC+ said it would deepen those cuts to 2.1 million barrels per day from the start of 2020.

Despite its plan for stiffer production cuts, OPEC+ could have a tougher time keeping oil prices up in 2020 as U.S. shale oil output could rebound next year, some long-time traders in oil said.

While production as a whole hit a record high of 12.9 million barrels per day in 2019, shale oil output, which accounts for more than half of U.S. total production, has been somewhat restrained this year. U.S. crude producers as a whole cut the number of in the country to 677 this year from 885 at the end of 2018, a drop of 208 rigs, or 24%.

“The main reason for the 24% cutback in actively-drilling U.S. oil rigs this year was the price uncertainty that persisted midyear,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. WTI hovered between $50 and $55 during most of the summer months, weighing on the broader oil market.

Kilduff said with the OPEC decision to double down on production cuts taking effect only in early December, it will take U.S. drillers some time to turn their spigots back on in full and plow ahead with production.

“With oil prices being the way they are, one can bet on more challenges ahead for production,” Kilduff added. “WTI at above $60 is very, very remunerable to U.S. shale. OPEC will have to take a lot more off the market to face that wall of shale supply headed the global market’s way.”

Non-OPEC oil supply, led by the U.S. shale, is forecast to grow by 2.1 million barrels a day in 2020, according to the Paris-based International Energy Agency (IEA).

Global demand for oil, meanwhile, is set to increase by 1.2 million barrels a day next year, the EIA said.

That means the world will need 900,000 fewer barrels of oil every day from both OPEC and non-OPEC producers alike, a situation that could sharply offset OPEC+ production cuts.

For the bulls, the coming year may still have a positive start from the phase one of the U.S.-China trade deal, which, according to a tweet by President Donald Trump on Tuesday, will be signed on Jan. 15. Yet, the positive impact of that deal could just be fleeting if U.S. crude production starts ramping up strongly.

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Air Canada to temporarily lay off 15000 workers due to COVID-19 fallout – CTV News

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MONTREAL —
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.

The carrier is also cutting between 85 per cent and 90 per cent of its flights, cancelling most of its international and U.S. routes in response to the global shutdown.

Earlier this month Air Canada’s flight attendant union said 5,149 cabin crew would be temporarily laid off due to the COVID-19 outbreak.

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

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Two more Canadian banks cut prime rates by 50 basis points – The Globe and Mail

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National Bank of Canada and Laurentian Bank of Canada both announced plans Monday to drop their prime rates by 50 basis points to 2.45 per cent. They join the Big 5 banks in decreasing lending rates to match the Bank of Canada’s unscheduled interest rate announcement on Friday.

The new National Bank and Laurentian Bank rates are effective Tuesday. Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia , Bank of Montreal and Canadian Imperial Bank of Commerce all cut their prime rates to 2.45 per cent on Friday, and were effective as of Monday.

The Bank of Canada Friday unexpectedly cut its key interest rate to help the county weather the economic fallout of the coronavirus pandemic.

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The Bank of Canada cut its overnight interest rate by 50 basis points to 0.25 per cent, its lowest level since June 2010.

Separately, Canada’s financial regulator eased its capital and liquidity requirements for banks, changed credit loss provisioning and allowed more loans to be securitized.

The pandemic has forced several governments to take actions as businesses grind to a halt and several retailers close stores to curb the spread of the highly-contagious diseases, leaving many people jobless.

This is the third time the big banks have cut prime rates over the past month. The prime rate impacts the cost of borrowing for many financial products, including variable rate mortgages.

Reuters, Globe staff

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Is Oil Heading To $10 – OilPrice.com

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Is Oil Heading To $10? | OilPrice.com

Ag Metal Miner

MetalMiner is the largest metals-related media site in the US according to third party ranking sites. With a preemptive global perspective on the issues, trends,…

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    Popular investor inclination may be that after such a dramatic fall, the oil price has to bounce back, that investor sentiment on the downside was an overreaction. That inclination might also say after a chance for reflection has been allowed, prices will recover.

    But the reality is all we can reliably expect is a period of intense volatility.

    A price recovery will only come if the price war between Saudi Arabia and Russia comes to an end.

    Both sides have substantial financial reserves. Russia, in particular, is benefitting from a collapse in the ruble against the dollar, making its oil receipts not much different from before hostilities broke out.

    Russia can weather this storm for some time to come and seems ill-disposed to reach an agreement for substantial cutbacks any time soon.

    Saudi Arabia’s policy, on the other hand, seems to be set largely by the young Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud (or MBS, as his name is sometimes abbreviated by the media).

    The crown prince has shown he is willing for Saudi Arabia to make considerable sacrifices if he believes he is in the right — witness the ruinous ongoing war in Yemen the kingdom has been waging for nearly five years (and realistically achieved little in the process).

    Earlier this month, the U.S. appointed an energy envoy to Saudi Arabia, raising hopes that the U.S. might broker a truce between the Kingdom and Russia.

    But so far, no progress has been made.

    An announcement by the U.S. that it would add 77 million barrels to its strategic reserve to support prices will do little now that the coronavirus is decimating demand.

    As The Economist notes, the vast salt caverns along America’s Gulf Coast that contain the strategic reserve are already about 90 percent full, so they cannot store enough excess supply even if that were a viable option to impact prices. Not only are national strategic and producer reserves rapidly filling up, but so are consumers. Oilprice.com reports refiners in Baton Rouge could begin to slow deliveries as their own storage facilities max out, further depressing prices.

    Related: Oil Hits $20 For The First Time In 18 Years
    The article quotes Bernstein, a research firm, which estimates demand in the first half of the year will be maybe 10 percent, or even 20 percent, below what it was in 2019.

    In the past 35 years, demand has only twice been lower than in the preceding year — in 2008 and 2009.

    Yet shale oil continues to flow, adding to OPEC+ excess supply.

    Many shale drillers are hedged for now and the outlook for output cuts in the short term is limited. Added to this is a potential 1 million barrels a day of output that some analysts fear could come back onto the market from Libya gradually this year.

    Oilprice.com reports global oil demand could plummet by 18.7 million barrels per day (bpd) in April, deepening an expected demand plunge of 10.5 million bpd for March, citing Goldman Sachs advice, overwhelming any possible cutbacks Saudi Arabia and Russia could now make.

    Talk of sub-$20 per barrel oil that seemed excessively pessimistic just a week or so back is now a reality. CBC reported Friday that Western Canadian Select (WCS) was selling for $6.45 U.S. a barrel Thursday, down U.S. $2.84 from a day earlier.

    Related: Refiners Are Having To Pay To Produce Gasoline

    As a result, it opened the very real possibility that producers, at least in the short term, may have to pay companies to take oil — effectively creating negative oil prices.

    Source: Standard Chartered Research

    Such chaos will decimate investment and idle exploration, opening up the probability that prices could surge in the years ahead as the industry is unable to meet a return in demand.

    For now, though, producers and consumers are going to face a volatile pricing environment, with prices driven as much by sentiment as the appalling underlying fundamentals.

    By Stuart Burns via AG Metal Miner

    More Top Reads From Oilprice.com:

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