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Oil Prices Already Reflect Huge Demand Destruction – OilPrice.com

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Oil Prices Already Reflect Huge Demand Destruction | OilPrice.com

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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OPEC+ is moving quickly to try to halt the meltdown in oil prices as the demand hit from the coronavirus continues to grow.

The Joint Technical Committee (JTC) meets Tuesday and Wednesday to assess the damage and to recommend a course of action. Press reports suggest OPEC+ is considering deeper cuts on the order of 500,000 bpd to 1 million barrels per day (mb/d). The rumor was enough to halt the slide in oil prices on Tuesday, after WTI briefly dipped below $50 per barrel during intraday trading on Monday.

BP’s CFO Brian Gilvary said that the coronavirus could shave off 300,000 to 500,000 bpd from demand growth this year. “We will see how it plays out, but that will soften (demand). If OPEC roll their cuts through the end of year, that should sweep up any excess of supply and re-balance the market,” he told Reuters.

Oil prices have declined by 20 percent decline over the past month. The oil market was “already slightly oversupplied in January,” before the outbreak of the coronavirus really began to hit, Commerzbank said in a note on Tuesday. Whether OPEC+ can balance the market will “depend chiefly on Saudi Arabia,” the bank said. “After all, the restrictions to crude oil processing that have been announced in China will total nearer to 1 million than 500,000 barrels per day.”

Meanwhile, Goldman Sachs is out with a note that digs a little deeper into the demand side of the equation. The $11-per-barrel decline in oil prices over the past few weeks is “effectively pricing in a large oil demand shock,” Goldman analysts said. “Illustrating this dynamic, the recent move of front-month Brent timespreads into contango – for the first time since last July – would be consistent with the physical market suddenly shifting into a large surplus.” Related: New Tech Could Unlock An Alaskan Oil Boom

Of course, estimating the specific hit to demand is still guesswork – much depends on the duration and severity of the crisis. Still, Goldman Sachs said that its model, which incorporates shifts in the structure of the oil futures curve as well as inventory levels, results in an estimated loss of 500,000 bpd in demand growth.

But then, the bank also factors in a 50 percent chance of a 500,000-bpd cut from OPEC+, and it also assumes the 1 million-barrel-per-day (mb/d) outage in Libya lasts through early March. That brings the demand destruction total up to 750,000 bpd relative to the bank’s original forecast.

The coronavirus also cuts into GDP growth by 0.44 percent. “Such a global GDP hit would be even larger than the worst case scenario that our economists laid out in their latest assessment of a two quarter hit, suggesting that the oil market is already pricing in a significant demand shock relative to other assets,” the bank concluded. Related: Why Europe’s Gas Glut Is Worsening

However, because so much of this is already baked into the price, Goldman analysts say there is “only modest further downside potential.”

In another study, investment bank Standard Chartered said that much depends on Libya, which is garnering surprisingly little press attention given the severity of that country’s crisis. The civil war rages on, and the LNA has effectively blockaded much of the country’s oil exports.

If the 1-mb/d outage in Libya persists, the surplus in the market for the first half of the year because of the coronavirus would be offset by the deficit in the second half of 2020, “even under our most severe demand scenario,” Standard Chartered said in a note to clients. “However, while the Libyan outage might delay or reduce the reaction, pressure on prices is likely to force an additional OPEC cut despite potential H2 tightness.”

There are so many variables that any pricing forecast goes out the window if one factor plays out differently than expected. But OPEC+ is not taking any chances. The Joint Technical Committee (JTC) meets on Tuesday and Wednesday, and a full ministerial meeting is expected late next week.

By Nick Cunningham of Oilprice.com

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RBC warns house price correction could be deepest in decades | CTV News – CTV News Toronto

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A housing correction, which has already led to four consecutive months of price declines in the previously overheated Greater Toronto Area market, could end up becoming “one of the deepest of the past half a century,” a new report from RBC warns.

New data released by the Toronto Regional Real Estate Board (TRREB) last week revealed that the average benchmark price for a home in the GTA fell six per cent month-over-month in July to $1,074,754.

Sales were also down a staggering 47 per cent from July, 2021.

In a report published on Aug. 4, RBC Senior Economist Robert Hogue said recent data from real estate boards underlines that higher interest rates are beginning to take a “huge toll” on the market.

Hogue said that with further hikes to come, prices will likely continue to slide in the coming months.

That prediction, it should be noted, goes against a report from Royal LePage last month which painted a rosier forecast for sellers in which values would more or less holding for the rest of the year following some declines in the second quarter.

“Our expectations for further hikes by the Bank of Canada—another 75 basis points to go in the overnight rate by the fall— will keep chilling the market in the months ahead,” Hogue said. “We expect the downturn to intensify and spread further as buyers take a wait-and-see approach while ascertaining the impact of higher lending rates. Canada’s least affordable markets Vancouver and Toronto, and their surrounding regions, are most at risk in light of their excessively stretched affordability and outsized price gains during the pandemic.”

The Bank of Canada has hiked the overnight lending rate by 225 basis points since March and has warned that further hikes will be necessary given that inflation remains at a near 40-year high.

In his report, Hogue pointed out that the housing correction “now runs far and wide across Canada” but he said that it is particularly pronounced in the costlier markets of Toronto and Vancouver.

In fact, Hogue said that housing resale activity in Toronto is at its slowest pace in 13 years, outside of the early days of the COVID-19 pandemic.

The stockpile of available homes is also up 58 per cent from a year ago, he noted.

“With more options to choose from and higher interest rates shrinking their purchasing budgets, buyers are able to extract meaningful price concessions from sellers,” he said, pointing out that the average price of a home in the GTA is down 13 per cent from March. “We expect buyers to remain on the defensive in the months ahead as they deal with rising interest rates and poor affordability.”

While Hogue did say that condos in the City of Toronto are likely to remain “relatively more resilient” he said that prices elsewhere will continue to fall for the time being, especially in the 905 belt “where property values soared during the pandemic.”

The July data from TRREB suggested that the average price of a home in the GTA was still up one per cent from July, 2021.

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Canada Revenue Agency plans email blitz to get Canadians to cash outstanding cheques worth $1.4-billion – The Globe and Mail

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The Canada Revenue Agency (CRA) is planning a massive e-mail notification campaign to reach Canadians across the country who have uncashed cheques worth a net $1.4-billion.

The e-mail notifications will target recipients of the Canada child benefit and related provincial and territorial programs, as well as recipients of the GST/HST credits and the Alberta Energy Tax Refund.

The CRA said it plans to send approximately 25,000 e-mails in August, another 25,000 in November and a further 25,000 e-mails by May, 2023.

However, even without receiving an e-mail notification, the agency said a taxpayer can check if they have a cheque by logging into My Account, a secure portal on its website to check if they have an uncashed cheque over a period of six months. It added that representatives can also view uncashed cheques of their clients.

Each year, the CRA said it issues millions of payments to Canadian taxpayers in the form of refund benefits. These payments are issued by either direct deposit or by cheque.

“Over time, payments can remain uncashed for various reasons, such as the taxpayer misplacing the cheque or even a change of address which did not allow for delivery,” the agency said in a statement.

The CRA said since the e-mail notification initiative was first launched in February, 2020, about two million uncashed cheques valued at $802-million were redeemed by May 31, 2022.

The average amount per uncashed cheque is $158 with some of them dating as far back as 1998, the agency said.

As of May, 2022, there were an estimated 8.9 million uncashed cheques with the CRA. In May, 2019, about five million Canadians had an estimated 7.6 million uncashed cheques.

“As government cheques never expire or stale date, the CRA cannot void the original cheque and re-issue a new one unless requested by the taxpayer,” the statement read. “These upcoming e-notifications are to encourage taxpayers to cash any cheques they have in their possession.”

The agency said taxpayers can register for the direct deposit option on its website to receive payments directly into their bank accounts.

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