As oil prices dropped to unprecedented negative levels Monday, experts say it is all the result of an oversupply problem that was pushed to this point due to stay-at-home orders related to COVID-19.
As of Monday afternoon, the price of North American benchmark West Texas Intermediate (WTI) crude oil dipped 300 per cent to close at negative $37.63 a barrel — which meant producers were paying buyers to take their product.
The WTI trading hub in Cushing, Okla., is expected to hit capacity within four weeks.
“We’ve never seen anything like it before: so much oil, not enough demand and not enough tanks to store it in,” said energy expert Richard Masson, an executive fellow with The School of Public Policy at the University of Calgary.
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Masson said we got to this point thanks to COVID-19 stay-home orders — because people across North America aren’t travelling by car or plane as often, there’s been a huge drop in demand. Also, fully stocked airlines and refineries aren’t necessarily looking for new oil deliveries.
“Global demand has been [previously] about 100 million barrels a day, and with everyone staying home around the world, demand has dropped by about 30 million barrels a day,” Masson said.
The reason the drop happened Monday is because oil contracts are traded on a month-by-month basis, and May contracts for WTI are up this week. The prices dropped to the negatives because some companies simply don’t have the space to accept any more oil, according to Masson.
“Right now they [companies] have to pay 35 dollars per barrel for somebody to take that oil off their hands,” said Masson.
1:46 Crude oil futures prices turn negative for the first time in history
Crude oil futures prices turn negative for the first time in history
After dropping briefly into the negatives on the weekend, Alberta-produced Western Canadian Select — whose price is based on a discount to WTI — closed Monday above $9 a barrel, but its also expected to see negative trading days in the future — at least until demand increases — Masson said.
The prices for June contracts are still trading above $20. But another economic expert said that’s optimistic — and even if that number sticks, there could be big drops in the future.
“The market thinks there’s going to be less pressure on those contracts, on inventory space then [in June],” said Rory Johnston, managing director and market economist at Price Street Inc.
“My expectation is that, as we kind of roll out of May and into the June contract, we’re going to see a big rally in prices… but eventually those prices [will] start falling again to create the market for storage space in June.” Johnston said.
Johnston agrees that the only thing that will truly allow oil prices to bounce back will be once COVID-19 restrictions are lifted and people start to need fuel again — but that also depends on several factors.
“[Not only] whether or not you would begin to see government begin to reopen economies — whether or not people actually follow suit, and actually go out and do things once the economy is reopened,” he said.
“It doesn’t seem likely that we’re going to be seeing a huge bounce-back in air travel anytime soon.”
Premier Jason Kenney said Monday that the negative prices “further underscores the devastating impact of recent events on the largest industry in this province,” and that he believes the federal government should be offering more support.
“Much more action is needed,” Kenney said. “I join with premiers from coast to coast, and many other key leaders of the Canadian economy, including the heads of the largest banks and financial institutions — who understand that this is not an Alberta issue.
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“This is not an industry-specific issue, that this strikes right at the heart of the entire Canadian economy.”
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Kenney said he was once again making a public request for federal action.
“If we see the current negative price situation continue for any period of time, the implications obviously for this industry are are very serious,” he said.
3:19 Kenney thanks feds for energy sector support, says more must be done
Kenney thanks feds for energy sector support, says more must be done
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
