Saudi Arabia’s Crown Prince Mohammed bin Salman is learning the hard way that barrels of oil with nowhere to go are worth approximately zero. Saudi barrels aren’t worth nothing – yet – but they’re getting close.
On Tuesday, the day after U.S. oil prices actually went negative, Brent crude, the international benchmark, fell 25 per cent to US$19 a barrel. A year ago, it was trading at US$70.
In early March, MBS, as the crown prince is known, apparently thought he had figured it all out. He wanted OPEC, which is led by Saudi Arabia, and Russia, an OPEC ally, to cut production to support prices, which were sagging as the novel coronavirus was bursting out of China. Russia said nyet.
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MBS didn’t take Russia’s refusal to play well. He broke Saudi Arabia’s alliance with Russia and vowed to open Saudi Aramco’s spigots, flooding the world with oil. For him, it would be a nice little twofer: Punish Russia and punish the shale-oil industry, whose burgeoning output had transformed the United States into the world’s biggest oil producer and one of its biggest oil exporters.
What could go wrong?
A week later, on March 11, Saudi Arabia signalled that it would dump another 2.3 million barrels a day onto the global market, taking the country’s total output to 12.3 million barrels. Energy analysts were astonished. Olivier Jakob, a former oil trader who is now the managing director of Swiss oil consultancy Petromatrix, called the move highly aggressive, “forcing as much crude as possible in a market that does not want it.”
Indeed. By mid-March, oil was falling fast, and MBS apparently realized that his timing was rather off. So he did a U-turn and convinced OPEC and its allies to cut production by almost 10 million barrels a day. But the cuts would take months to implement, and by then, it would be too late anyway. The COVID-19 crisis had shut down economies around the world. Unsold oil was filling storage tanks and parked supertankers to the brim.
This week, the dire situation reached the point where the cost of storing American oil was higher than the price of oil itself. That’s when prices turned deeply negative. (On Tuesday, West Texas Intermediate rebounded to US$6 a barrel – a price that would still destroy the shale industry within months.)
MBS seems to have lost more than he has gained. Yes, the U.S. shale industry – the business that had the audacity to challenge Saudi Arabia’s dominance of the market – is in deep trouble. U.S. oil-company bankruptcies have started and will continue.
But the Saudi economy is also taking punishing blows. The prospect of oil going back to US$70, even US$50, this year appears slim, as big economies make only tentative steps to dismantle their quarantines. Demand could stay unusually low until a COVID-19 vaccine is developed, which may not happen until sometime next year. Italy gives you a sense of the demand destruction. Figures released Tuesday reveal that March oil sales were 34-per-cent lower than a year ago. Gasoline sales were down 52 per cent, and diesel was down 41 per cent. April’s consumption figures will be even lower, because the Italian quarantine did not start until March 9.
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Saudi Arabia is not facing financial and economic catastrophe, as Italy is. The kingdom has ample foreign currency reserves and a low public debt – its debt-to-GDP ratio is 24 per cent (Italy’s is 135 per cent and rising). Saudi Aramco, the world’s biggest company, has the lowest pumping costs of any oil producer and can endure US$20 oil for some time, though the price could keep falling.
That’s pretty much where the good news ends, because Saudi Arabia itself is a high-cost operation. The extended royal family has some 15,000 members, and a lot of them like their yachts and Ferraris. The country is an undiversified welfare state with a small entrepreneurial class. The upshot is that the government needs oil at about US$80 to balance its budget.
Already, there are signs of stress in the kingdom. Fitch Ratings has placed the top 10 Saudi banks on “rating watch negative.” It did so after oil prices plunged in mid-March (the high rating of the country itself was left stable). The budget deficit is widening fast. The Finance Minister in late March said he expects the deficit to reach 7 per cent to 9 per cent of GDP. But that was when Brent crude was still hovering around US$30. The price has fallen by a third since then, suggesting the deficit could be much higher.
MBS knows that he has to wean Saudi Arabia off its oil dependence. In 2016, he unveiled his Vision 2030 plan to modernize and diversify the economy. The plan would recruit women into the work force, create tech and logistical centres, build new cities along the Red Sea, open the country up to tourism and develop a manufacturing base. But turning the vision into reality would require fortunes; those fortunes would, by definition, have to come from oil production.
Vision 2030 is looking ambitious within the next decade as oil falls out of favour and Saudi Arabia’s financial health deteriorates. The pandemic, of course, propelled prices down at an alarming rate. But MBS’s decision to go to war against Russian and American oil producers last month was badly timed, spectacularly so. Vision 2040 anyone?
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TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
