The prospect of cheaper gas at a time when most Americans are holed up at home is not much of a silver lining to the coronavirus pandemic. Energy analysts say there is little upside to the unprecedented plunge in oil prices that sent crude oil futures spiraling into negative territory on Monday, spooking Wall Street.
Patrick DeHaan, head of petroleum analysis at GasBuddy, predicted that the national average gas price could drop below $1.50 a gallon in the coming weeks, noting that a few states have already hit this benchmark. But he said drivers shouldn’t expect to see gas fall as sharply as crude prices. “Unfortunately for motorists, it may not fully make it to the pump, given that stations are trying to keep the doors open — even with volume down 50 to 70 percent,” he said.
Analysts also note that the concept of “negative oil,” as President Donald Trump referred to it in a news briefing on Monday, is more theoretical than actual. Although it suggests that a seller would have to pay a buyer to physically take a shipment of oil, it is largely a “paper transaction” by the financial instruments that hold oil futures contracts.
Paper or not, prices tumbling into negative territory is a symptom of a very real problem: With demand for everything from gasoline to jet fuel plummeting, producers are literally running out of places to store oil once it leaves the ground.
Trump on Monday floated the idea of solving that problem by purchasing roughly 75 million barrels of oil, the spare capacity in the U.S. Strategic Petroleum Reserve, as well as banning imports of Saudi Arabian oil. Neither is likely to be terribly effective, analysts say.
“Refineries are set up to handle specific slates of crude. You can’t simply disallow Saudi oil and replace it with American oil,” said Stewart Glickman, energy equity analyst at CFRA Research. Oil has variations in density and sulfur content, and refineries can’t process the kind of oil extracted from American soil.
“Putting a tariff on Saudi crude would do nothing to address the underlying problem,” said Jim Burkhard, vice president and head of oil markets research at IHS Market. “A tariff will not conjure up demand growth.”
“It’s not a terrible idea to fill the SPR with prices where they are, but there is a limit,” Glickman said.
Glickman said American oil producers need prices of at least $20 a barrel just to cover day-to-day operations. For the industry to make money in the longer term, including investing in exploration and equipment, prices need to be roughly double that.
If prices don’t regain stability, analysts’ biggest fear is that the U.S. energy sector won’t be able to bounce back. “The longer oil remains this low, the more risk there is that when demand rebounds, oil production won’t,” DeHaan said.
Michael Moebs, CEO and economist at financial consulting firm Moebs Services, said plummeting oil prices could drive interest rates — already at historic lows — down even further, a prospect that could have negative implications for banks and destabilize financial markets already shaken by the coronavirus pandemic. “It would be a double-whammy. We see COVID causing a problem… But that’s going to pass,” he said.
By comparison, the hangover from the oil crash could linger well into 2021.
“Oil and gas investment has grown to be a large and important source of U.S. business investment and employment over the past 10 to 15 years, so the decline in prices and falling investment will have a negative impact on the U.S. economy,” Burkhard said.
Although jobs in energy will be the first dominos to fall — especially smaller producers who don’t have the financial cushion to withstand a sustained downturn — they won’t be the last, said Daniel Zhao, senior economist at Glassdoor.
“There also will be spillover effects to businesses that service those industries, everything from car sales to retail spending to real estate,” he said.
“It’s not just drilling wells and producers, it’s everything that goes downstream… pipelines, refineries, petrochemicals, oil field services,” said Peter McNally, global energy sector lead at investment and research firm Third Bridge.
“There are much broader economic implications this time. It’s not just oil seeing demand drop — it’s pretty much every industry,” McNally said.
“Employment in the oil industry is probably going to stay under pressure until we start to see futures prices go above $40 a barrel, and we don’t see that,” Glickman said.
“On a net basis, this is pretty atrocious for the U.S. economy,” he said.
Economy adds surprise 290,000 jobs in May; unemployment rate at record level – The Globe and Mail
Canada added 290,000 jobs in May after two months of brutal layoffs, a surprise turn for the job market as provinces have only recently begun to ease lockdown restrictions.
Despite the gain, the unemployment rate rose to 13.7 per cent, the highest since comparable data became available in 1976, as more people started seeking jobs.
“The surprisingly positive readings on employment paint a more optimistic picture of the early part of the recovery, but there’s still a long road back,” said Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, in a note to clients.
About three-quarters of May’s increase was in full-time positions, while the goods-producing sector (5-per-cent gain) snapped back more forcefully than services (1-per-cent gain).
In turn, men saw stronger employment growth (206,000) than women (84,000). Statistics Canada noted that among parents, women registered fewer job gains than men and were more likely to lose hours.
The total number of hours worked in all industries climbed 6.3 per cent in May, following a plunge of nearly 28 per cent between February and April. There were sizable increases in construction (19 per cent), wholesale and retail trade (11 per cent) and manufacturing (10.9 per cent).
Quebec accounted for nearly 80 per cent of May’s employment increase as it saw a net gain of 231,000 workers. The province allowed the construction industry to return in mid-April and other restrictions began to ease outside the Montreal area in early May.
Ontario was the only province where employment declined last month, although losses were less severe than in March and April. The first stage of the province’s reopening plan took effect after the Victoria Day weekend.
Going into Friday’s job report, it was widely assumed that Canada would experience another month of layoffs. The median estimate from economists was for employment to decline by 500,000 in May, following April’s loss of nearly two million and March’s drop of about one million.
This was partially the result of timing. Statistics Canada surveyed households on their work status between May 10 and 16. By then, many reopening stages had yet to take effect.
Instead, Friday’s results surprised by showing that employers are already adding to payroll.
As Canada enters its summer months, there are mounting signs of economic activity picking up. Hiring site Indeed Canada has seen a recent uptick in new job postings. Consumer spending, while lower than a year ago, has improved in recent weeks, according to Royal Bank of Canada transaction data. And home and auto sales have perked up, as has business sentiment.
Still, it’s shaping up to be a long recovery in the job market. Many companies are reopening to weaker sales and larger debt obligations, making it difficult to staff at prepandemic levels.
Only 13 per cent of small business owners are planning to add to full-time staff in the next three months, compared to 37 per cent who are planning to cut back, according to recent survey results from the Canadian Federation of Independent Business.
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U.S. economy added 2.5 million jobs in May as states reopened from COVID-19 shutdowns – CBC.ca
The unemployment rate in the United States unexpectedly fell in May and layoffs abated, the Department of Labour said Friday in a report that showed the latest signs the economic downturn caused by the COVID-19 pandemic was bottoming.
The department’s closely watched monthly employment report showed the jobless rate dropped to 13.3 per cent last month from 14.7 per cent in April. Nonfarm payrolls rose by 2.509 million jobs after a record plunge of 20.687 million in April.
Economists polled by Reuters had forecast the jobless rate jumping to 19.8 per cent in May from 14.7 per cent in April. Nonfarm payrolls for May had been expected to fall by eight million jobs.
The jobs market improved considerably in the second half of May as businesses reopened after shuttering in mid-March to slow the spread of COVID-19. Consumer confidence, manufacturing and services industries are also stabilizing, though at low levels, signs the worst may be over.
“The good news is that we probably have hit the bottom,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “But the recovery will be painfully slow. It will take years, probably a decade to get back to where we were at the end of last year.”
Canada can hit climate targets without ruining economy, economists and climate experts say – CBC.ca
Last November, the United Nations Environment Program released its annual Emissions Gap Report, which found that in order to limit global warming to 1.5 C above pre-industrial levels, CO2 emissions would need to drop by 7.6 per cent annually over the next decade.
Given that worldwide emissions are estimated to have risen by about 0.4 per cent in 2019, this seemed like an unattainable goal.
A recent study published in Nature Climate Change, however, suggests that as a result of global shutdowns due to the COVID-19 pandemic, emissions in 2020 could drop by roughly seven per cent.
At first glance, it might appear as though a devastating economic shutdown is the only way to reach those UN targets. But some experts say this isn’t the case, and insist there is a way to have economic growth and reduce emissions that adhere to the UN guidelines.
“We can’t have this [kind of a shutdown] for tackling climate change — absolutely not,” said Corinne Le Quéré, a Canadian professor of climate change science at the University of East Anglia and lead author of the Nature study. “This is a really painful way to get a decrease in emissions.” She also noted that it likely won’t last.
Don Drummond, an economist who worked for the federal Department of Finance for 23 years, pointed out that emissions in Canada have almost flat-lined, on average, over the past few years during a period of economic growth (prior to the coronavirus pandemic).
This, he said, is evidence that reducing emissions to UN guidelines is possible.
“We’ve achieved higher growth with flattening emissions and we can and should go further and achieve positive growth with declining emissions,” said Drummond, an adjunct professor at Queen’s University and former chief economist at the Toronto-Dominion Bank. “That can be done, but we need a more concentrated policy effort.”
Drummond, who was one of the architects of the Goods and Services Tax in 1991, said there is a long history in Canada of scare-mongering that a given new policy will kill the economy, from the GST to the North American Free Trade Agreement. Quite often, it doesn’t.
Many governments around the world are trying to stimulate their economies during the pandemic, and this could be an opportunity to funnel money into green technologies, said Le Quéré.
She said that one of the key findings of the Nature study was that the biggest drop in emissions during the pandemic, behind the aviation industry, has been in surface transport. This, she said, could be one sector governments could target.
“The biggest reason why the emissions [went] down now is mobility. So we just don’t go anywhere. We don’t use our cars. Governments could say, ‘Well, we’re going to tackle that as we get out of confinement,'” Le Quéré said. That could “include everything from encouraging home-working for those who want to and who can, then developing infrastructure for … walking or cycling.”
While Drummond believes the federal government is likely to invest in methods to reduce emissions, he said it will likely be a long time — perhaps years — before we see stimulus packages aimed at revitalizing the economy, such as specific jobs programs.
In the meantime, he said the government can use other means to reach the 7.6 per cent emissions-reduction goal, such as disincentives — like the carbon tax on things like gasoline and heating fuels — which can be effective in bringing down emissions, particularly when that money is recycled back to people and businesses, as the federal government is doing.
“If you have the right incentives or the right disincentives in place, there can be growth that takes place that is not environmentally damaging,” Drummond said.
“I would say put a price on it … that’s what it really comes down to.”
Another could be investing in retrofitting buildings to make them more efficient, which would be very labour-intensive and could create more jobs. But Drummond said that would be “second best.”
On the path
Mark Jaccard, a professor of sustainability energy at Simon Fraser University, said transitioning to renewable energy isn’t as costly as some may think it is.
He said it would cost “at most, two years of economic growth spread over a 30-year period.” (In recent years, Canada has experienced annual growth in the 1.5 to 1.9 per cent range.)
Jaccard, who is currently working on the next IPCC report, said that this small sacrifice over an extended period of time is far better than the alternative.
“It’s a slight difference in economic output over a 30-year period in order to prevent the dramatic crashing in your economy because of wildfires, acidified oceans, rising seas, major storms and pandemics that can happen from climate change,” he said.
Drummond agrees, noting that concerns about emissions reductions harming the economy will likely always be around, even if they are without merit.
Canada is already on the right path, he said, and the country can ramp up its efforts to see both economic growth and a notable reduction in emissions.
“It’s not like we’re asking to do something that’s never been done before. We are doing it right now, we’re just not doing it enough,” he said. “If you asked me to move a three-tonne rock, if I can move it an inch, I’m pretty sure I can move it a foot.”
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