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What was behind oil's wild week and the challenges that lie ahead – CBC.ca

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It was a week unlike any oil markets have seen before.

On a day some oil investors are now calling Black Monday, the benchmark price for North American crude — West Texas Intermediate — went negative for the first time as oil traders panicked over a lack of storage and the expiring May futures contract, which are agreements to buy and sell a certain amount of oil at a certain time in the future. 

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A few days later, crude prices for June look robust by comparison, climbing to nearly $17 US a barrel on Friday. But such prices are still punishingly low for an industry that started the year with WTI hovering above $55 US.

Oilpatch spending, production and jobs are all under increasing pressure as the economic fallout of the COVID-19 pandemic crushes demand for oil worldwide.

As the week came to a close, CBC Radio’s The Cost of Living spoke with sought-after market watcher Helima Croft, a managing director and the global head of commodity strategy at RBC Capital Markets.

Croft, an expert on geopolitics and energy, addressed the week that was, OPEC’s historic cuts, the challenges that still lie ahead and what it’s going to take to turn things around.

The interview has been edited and condensed for length and clarity.


What was happening in the world that oil prices could go negative on Monday?

“The backdrop to what they’re now calling Black Monday in the oil market is that since the COVID-19 crisis began, we’ve seen a situation where, around the world, people are locked in their homes. They are not flying, they’re not driving cars. And we have no place, and no demand, for oil at the moment. 

“That was a sort of backdrop that went into the week, heightened concern that we were running out of storage, particularly in the United States.

Helima Croft, global head of commodity strategy at RBC Capital Markets. (RBC Capital Markets)

“And so there’s a uniqueness to what happened on Monday in terms of the May contract for WTI crude that was essentially expiring. And you had a situation where there’s a lot of pressure to sell that contract because nobody wanted to take physical delivery for that oil.

“But it reflected the larger concern in the market right now that we are running out of storage for oil.

There was hope, though, that when OPEC Plus announced a historically large cut — 9.7 million barrels-per-day of oil production — that it would help the situation. Has it helped? 

“This is a really important supply cut agreement. However, it came, people would say, too late into the crisis. And what had happened in the month leading up to the agreement was a price war between Saudi Arabia and Russia.

“It is going to be an agreement that extends a multi-year agreement and so the hope really is that as demand begins to pick up and people start driving and flying again, that this agreement will help balance the market, hopefully in the back half of the year or into 2021.

“It’s not going to impact the market immediately. It doesn’t actually take effect till May 1. But it’s important.”

Are there any more tools that OPEC could use to address the current imbalance in oil markets?

“One proposal that was floated by the minister from Algeria, who has the rotating presidency this year, was to essentially make the 9.7-million-barrel-a-day cut effective immediately, so not wait till May 1. But there’s some contractual issues with that … so that does not look like it’s going to be the policy route that OPEC opts for.

OPEC and OPEC Plus have agreed to cut nearly 10 million barrels a day in oil production starting May 1. (Ramzi Boudina/Reuters)

Now, there’s a question about compliance. OPEC has had a lot of challenges with compliance traditionally. Saudi Arabia, the UAE, Kuwait, those are the countries that have been the most compliant, honouring commitments. You have countries like Nigeria, Iraq — they have traditionally not fully lived up to their production obligations. And probably the biggest country that everybody is concerned about, will they live up to their cut commitments, is Russia.

Petroleum storage tanks at the BP Indiana Tank Field are seen this week in Indiana. The world is awash in oil, there’s little demand for it and we’re running out of places to put it. (The Associated Press)

“What OPEC and OPEC Plus can do is they can provide greater certainty to the market that these cuts will actually happen.

“The third thing that OPEC could potentially do, OPEC Plus, is to deepen the cuts. Saudi Arabia has agreed to cut production by close to four million barrels a day. The question is, would they go deeper?

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“But given the demand situation that we’re looking at, given the hit that we’re taking in terms of people who are not driving, people not flying, there’s limited ability for OPEC to change the course of the prices in the near term.

Thinking about the crude storage situation right now, from your perspective, could we actually run run out of room for all the oil? 

“We’re looking at a situation where Cushing [in Oklahoma], one of the most important storage facilities in the U.S., could be hitting tank tops within the middle of May. There are other places to store in the United States, like, for example, Louisiana.

Listen here to Tony Seskus explain the negative oil prices on The Cost of Living:If negative oil prices caught you by surprise this week, you’re not alone. We explain what happened — and what those negative prices could mean for this country. 5:46

“But we could really be seeing a situation where, you know, come June, we could have very little storage left. And I think that speaks to sort of how unprecedented this crisis has been because what has made this period really unique is not just the scale of the demand hit we’ve taken because of COVID-19, but also we had a supply crisis in the midst of a demand crisis.”

How does oil eventually recover from all this? 

I think we really need to get on the other side of the COVID-19 crisis. People keep saying to me when it all come back and I say, ‘I’m not an epidemiologist.’ It goes back when people feel comfortable getting in their cars, driving to work, drive to recreational activities, getting on planes again and flying.

Toronto’s normally jammed Don Valley Parkway is seen during the evening rush on April 2. Demand for fuel has dried up as the pandemic has many people staying or work at home. (Colin Perkel/The Canadian Press)

“It’s when do we get on the other side of this crisis … [and] resume economic activity. That’s what it’s going to take. And particularly on the driving side. We’ve had such a hit to gasoline demand. It’s really when people are willing to drive again.


Download the Cost of Living podcast for more on the economics of everyday life from CBC Radio.

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

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

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

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

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

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

Companies in this story: (TSX:BCE)

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