The novel coronavirus pandemic has ushered in many “firsts” in modern economic history. That includes the impact on the oil market, where the benchmark price for U.S. oil dipped below $0 on Monday for the first time ever.
But what does that mean for Canada and its oil-producing provinces?
“It really brings home how real the decrease in demand is, how real the oversupply is, how big the price adjustments are going to have to be,” said Andrew Leach, an economist at the University of Alberta.
What went negative on Monday was the price contracts for delivery of West Texas Intermediate (WTI) crude, the benchmark for North American oil prices. With planes grounded and cars sitting in driveways in locked-down economies, global oil demand has collapsed faster than oil producers have been willing or able to adjust.
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The result has been storage facilities quickly filling up around the world.
2:29 Oil prices drop to historic lows amid pandemic
Oil prices drop to historic lows amid pandemic
That’s what caused prices to fall below zero on Monday, experts say. Contracts for May delivery of WTI were set to expire on Tuesday, and many who held those contracts were desperate to to avoid having to take physical delivery of oil for which they had no space — desperate enough to be willing to pay buyers as much as US $37.63 per barrel to take the crude off their hands.
We may well see the same thing happen again when June and July, WTI contracts come due, said Blake Shaffer, an economist at the University of Calgary and former energy trader. And that’s bad news for Alberta’s oil producers, as much of the pricing of western Canada’s crude oil is based on WTI, Shaffer said.
“There’s definitely a lot of physical barrels here that change hands based on a set differential to WTI,” he said.
The degree to which individual producers are directly affected depends on how much of their production they’ve already sold, how they’ve hedged prices and other factors, said Leach.
The largest players in the oilpatch, for example, rely on their own supply chains, with little, if any, of their barrels traded with the contracts that saw the sell-off on Monday, he added.
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Still, the key question for oil producers of any size, anywhere is how quickly and how strong the world’s demand for oil will come back, Leach said. And that, he added, depends on the speed and strength of the economic recovery.
4:34 The oil crashes impact on Saskatchewan with Greg Poelzer
The oil crashes impact on Saskatchewan with Greg Poelzer
Canadians are used to hearing that the problem is western Canadian oil trading at a discount because there aren’t enough pipelines to get landlocked crude to market, Shaffer said.
In this case, though, it’s much of the world’s oil supply that has nowhere to go.
“There will be lasting impacts from this,” Schaffer predicted. “There will be companies that don’t make it through.”
For smaller producers, shutting in traditional oil wells is going to be relatively easy, Leach said. For larger oilsands producers, the process is more complicated. For them the focus is more on production slowdowns and not bringing new projects online, he added.
As for jobs, the impact may be less significant than one might expect, but only because the energy industry already went through ferocious cost-cutting during the downturn of 2015, Shaffer said.
Still, the top priority for both provincial and federal governments should be to provide support to workers so that they are able to stay home for as long as the health emergency lasts, Leach and Shaffer said.
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1:45 Oil price crash prompts calls for green energy
Oil price crash prompts calls for green energy
The second order of priority should be providing financial support to the energy industry, they added.
However, both warned against governments doling out cash or cheap loans directly to companies.
The goal should be to help the industry as a whole through the rough patch, not to prop up every single struggling business, Leach said.
If the crisis leads to industry consolidation, with some companies taking over weaker ones, “the government doesn’t need to care,” he added.
One way in which either Ottawa or provincial government could throw a lifeline to the industry without bailing out single companies would be to guarantee loans made by financial institutions, Schaffer said. That way, it would be private-sector lenders who decide who is credit-worthy, he added.
On Wednesday, a new report called for stronger oversight of proposed energy-sector bailouts after finding that millions of dollars previously spent or invested by Alberta since 2015 have helped pay high salaries for executives and dividends for investors at several companies in or near bankruptcy.
2:03 Feds announce $1.7B to clean up orphan wells in B.C., Alberta, and Saskatchewan
Feds announce $1.7B to clean up orphan wells in B.C., Alberta, and Saskatchewan
The Alberta Investment Management Corporation “has been engaging in this bailout of Alberta’s oil and gas industry for several years, losing tens of millions in the process,” Duncan Kinney of Progress Alberta, a left-leaning non-profit research and advocacy group, said in a press release.
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“This should serve as a clear warning to the federal government as it works out the details of its own financial bailout of oil and gas companies,” he added.
Prime Minister Justin Trudeau has said the federal government is working to provide aid to medium-sized oil and gas companies through Export Development Canada and the Business Development Bank of Canada.
“The challenge of our provincial and federal governments here is to … support the heart of the industry that’s going to make it through while allowing parts of the industry to wither and support workers who are negatively affected through that process,” Shaffer said.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
OTTAWA – The economy added 47,000 jobs in September, while the unemployment rate declined for the first time since January to 6.5 per cent, Statistics Canada reported on Friday.
The agency says youth and women aged 25 to 54 drove employment gains last month, while full-time employment saw its largest gain since May 2022.
The overall job gains followed four consecutive months of little change, the agency said.
The unemployment rate has been steadily climbing over the past year and a half, hitting 6.6 per cent in August.
Inflation that month was two per cent, the lowest level in more than three years as lower gas prices helped it hit the Bank of Canada’s inflation target.
The central bank has cut its key interest rate three times this year, and is widely expected to keep cutting as inflation has subsided and the broader trend points to a weakening in the labour market.
Despite the job gains in September, the employment rate was lower in the month, reflecting continued growth in Canada’s population.
Statistics Canada said since the employment rate saw its most recent peak at 62.4 per cent in January and February 2023, it’s been following a downward trend as population growth has outpaced employment growth.
On a year-over-year basis, employment was up by 1.5 per cent in September, while the population aged 15 and older in the Labour Force Survey grew 3.6 per cent.
The information, culture and recreation industry saw employment rise 2.6 per cent between August and September, after seven months of little change, Statistics Canada said, with the increase concentrated in Quebec.
The wholesale and retail trade industry saw its first increase since January at 0.8 per cent, while employment in professional, scientific and technical services was up 1.1 per cent.
Average hourly wages among employees rose 4.6 per cent year-over-year to $35.59, a slowdown from the five-per-cent increase in August.
The unemployment rate among Black and South Asian Canadians between 25 and 54 rose year-over-year in September and was significantly higher than the unemployment rate for people who were not racialized and not Indigenous.
Black Canadians in that age group saw their unemployment rate rise to 11 per cent last month while for South Asian Canadians it was 7.3 per cent. For non-racialized, non-Indigenous people, it rose to 4.4 per cent.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
