Crude oil prices hit their lowest level since 1986 and are down more than 80 per cent since the beginning of the year to levels below break-even, that has forced Canadian producers to cut production.
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.
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.
“Even though OPEC is cutting production — storage is filling up all over the world.”
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.
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 only thing that’s really going to get this market balanced, is people starting to drive and fly again, and demand going back up.”
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.”
Kenney makes public appeal for federal support
Last week the federal government announced more than $2 billion worth of support for the industry, with the majority of it being put towards cleaning up orphaned and inactive wells.
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.
“This is not an industry-specific issue, that this strikes right at the heart of the entire Canadian economy.”
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.
Kenney thanks feds for energy sector support, says more must be done
— With files from The Canadian Press
© 2020 Global News, a division of Corus Entertainment Inc.
Profit falls at TD and CIBC as loan loss provisions soar – CBC.ca
Canadian Imperial Bank of Commerce (CIBC) and TD Bank Group missed quarterly earnings expectations on Thursday, as they set aside billions to cover future loan losses due to the COVID-19 outbreak.
The massive jump in provisions took the total amount set aside by Royal Bank of Canada, Bank of Montreal , Bank of Nova Scotia, National Bank of Canada , CIBC and TD Bank to $10.93 billion.
The money set aside for credit losses on both performing and impaired loans as a result of the COVID-19 pandemic and continued pressure on oil prices has added to pressure on Canada’s biggest lenders from decade-low interest rates.
Canadian banks have grown their oil and gas loan books faster than total lending in recent quarters, and their business loan books overall expanded during the second quarter as borrowers unable to access debt markets drew down credit lines.
CIBC posted an adjusted profit of 94 Canadian cents per share for the quarter ended April, compared with analysts’ expectations of $1.58 per share.
TD Bank, Canada’s second-biggest lender, reported an adjusted profit of 85 Canadian cents per share, missing estimates of 89 Canadian cents.
Net income was $1.5 billion at TD, down 52 per cent from last year. Net income was $392 million at CIBC, down 70 per cent from last year.
CIBC also reported lower net income across divisions and higher expenses. Controlling costs is particularly vital for CIBC, which has already said it expects expenses to grow this year at about double the rate of its rivals.
It flagged layoffs earlier this year to aid its efforts to cut costs and become more efficient.
CIBC set aside $1.41 billion in the quarter for future loan losses, compared with $255 million a year earlier, while total provisions for TD Bank jumped to $3.22 billion, compared with $633 million a year earlier.
Irving Oil Purchasing North Atlantic Refining Corp. – VOCM
A tentative deal has been struck for Irving Oil to take over North Atlantic Refining and the Come by Chance oil refinery.
Irving Oil signed the agreement with Silverpeak to acquire North Atlantic, subject to a regulatory review and the conditions of sale being met.
Silverpeak purchased the facility from the Korea National Oil Company back in 2017 amid widespread speculation that Irving was also eyeing the refinery at the time.
Operations at the refinery were idled in March due to a downturn in the industry and concerns around the COVID-19 pandemic.
The refinery shutdown came ahead of planned upgrades and expansion work that officials had indicated would extend the life of the facility.
New Brunswick-based Irving says North Atlantic Refining provides a “reliable supply of fuel products to businesses and consumers across Newfoundland.”
There’s no immediate word on Irving’s plans regarding a possible restart of operations at Come by Chance.
Irving signs purchase agreement for dormant Come by Chance oil refinery – CBC.ca
In another shakeup in the Newfoundland and Labrador oil sector, Irving Oil announced Thursday that it has reached an agreement to purchase the idled refinery at Come by Chance.
In a news release late Thursday morning, New Brunswick-based Irving confirmed it will acquire North Atlantic Refining Corp. from U.S. investment firm Silverpeak, with the deal subject to regulatory review and conditions of sale being met.
The agreement includes the refinery in Placentia Bay, which has the capacity to refine 135,000 barrels per day of oil, and North Atlantic’s network of retail sites and other marketing assets.
“As a family-owned international refining and marketing company based in Atlantic Canada, Irving Oil has proudly served the people of Newfoundland and Labrador since 1950, providing a secure supply of energy to its customers across the province,” states the news release.
The refinery stopped making fuels in March because of the pandemic, and a resulting collapse in the oil market. Hundreds of workers have been laid off.
A source tells CBC News that Irving plans to keep the refinery in “care and maintenance” mode for now.
It’s yet another chapter for a refinery that has had a checkered past since it opened in the 1970s, including five different owners, an extended closure and a political scandal at the outset.
But prior to the pandemic, the refinery was riding a wave of optimism, with performance and environmental upgrades, and plans for more.
“We are coming from what we call a basket-case refinery to become a refinery of the future,” Thomas Jenke, former CEO at North Atlantic, said prior to his departure late last year.
If approved, the deal will represent another large investment by the Irving family in Newfoundland and Labrador.
Irving Oil Limited is already a powerful player in the retail gasoline market, with a chain of gas stations and restaurants, including its iconic Big Stops. J.D. Irving Limited operates a chain of Kent home improvement stores in the province, and owns Atlantic Towing, a company that operates a fleet of supply vessels in Newfoundland and Labrador’s offshore oil sector.
Meanwhile, North Atlantic provides fuel products to businesses and consumers across the province, and is a major contributor to the province’s economy, with some estimates putting its value to the gross domestic product at three per cent.
It has a deepwater terminal that welcomes oil tankers from around the globe, and a network of retail assets.
“Irving Oil would look forward to the opportunity to continue to provide a secure supply of energy to customers across the province,” says the press release.
Most workers at the refinery are represented by Local 9316 of the United Steelworkers. CBC has requested comment from union president Glenn Nolan.
This is not new territory for Irving. The company operates Canada’s largest oil refinery, in Saint John.
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