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Oil prices drift down on renewed economy concerns: Kemp

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LONDON — Oil prices have slipped back as the short-covering rally prompted by OPEC+’s surprise output target cut has been completed and given way to a wave of profit-taking and fresh short selling prompted by concerns about the economy.

Hedge funds and other money managers sold the equivalent of 87 million barrels in the six most important petroleum futures and options contracts over the seven days ending on April 25.

The selling was the first since the U.S. regional banking crisis erupted in March and came after funds had purchased a total of 245 million barrels over the previous four weeks.

The most recent week saw sales across the board, including Brent (-35 million barrels), NYMEX and ICE WTI (-19 million), European gas oil (-14 million), U.S. gasoline (-13 million) and U.S. diesel (-6 million).

The combined position fell to 447 million barrels (23rd percentile for all weeks since 2013) down from 534 million barrels (38th percentile) seven days earlier.

The ratio of bullish long to bearish short positions fell to 3.52:1 (39th percentile) from 5.00:1 (64th percentile) a week before.

Chartbook: Oil and gas positions

Heightened fears about a business cycle slowdown hitting petroleum consumption overwhelmed any residual bullishness stemming from the OPEC+ production cut announced on April 2.

Investment managers have become especially bearish about the outlook for middle distillates, such as diesel and gas oil, which are the most exposed to the industrial cycle.

Funds held a net position in middle distillates of just 7 million barrels (21st percentile) and bullish longs outnumbered bearish shorts by just 1.13:1 (21st percentile) on April 25.

Persistent inflation, increasing corporate layoffs, and heightened caution around spending by businesses and households signal a further slowdown in the business cycle over the next few months.

U.S. NATURAL GAS

Investors also tempered their recent optimism about U.S. gas prices as inventories continued to swell faster than normal for the time of year despite very low prices.

Funds sold the equivalent of 99 billion cubic feet over the seven days ending on April 25, after buying a net total of 1,287 billion cubic feet in the previous eight weeks.

The position slipped to 12 billion cubic feet net short (31st percentile for all weeks since 2006) from 87 billion cubic feet net long (34th percentile) a week earlier.

The ratio of bullish long to bearish short positions slipped to 1.00:1 (31st percentile) from 1.03:1 (34th percentile) the previous week.

Inventories continue tracking much higher than normal despite ultra-low prices fostering more consumption and the re-starting of the Freeport LNG export terminal.

Stocks were 280 billion cubic feet (+16% or +0.61 standard deviations) above the prior ten-year seasonal average on April 21, up from a deficit of 263 billion cubic feet (-8% or -0.98 standard deviations) on Jan. 1.

Stocks have continued to swell even though inflation-adjusted prices are in the 3rd percentile for all days since 1990, a signal that there is a persistent production surplus that will necessitate a further slowdown in drilling.

Related columns:

– Oil market has absorbed surprise production cut by OPEC⁺ (April 26, 2023)

– Oil buying slows amid renewed concerns about economy (April 24, 2023)

– Oil prices stall as short-covering rally is completed (April 17, 2023) John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Mark Potter)

 

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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