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These are stories Report on Business is following Tuesday, Feb. 10, 2015.

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IEA sees market stabilizing
A major international energy group is forecasting the bottom of the oil rout, but warns that Canada will feel the pinch.

Oil output in Canada will continue to increase, the International Energy Agency said today, and money already earmarked for near-term projects will still be spent.

But new projects probably won't get the go-ahead or will likely be stalled, the Paris-based advisory group said in its lengthy Medium-Term Market Report, which forecasts development out to 2020.

This will, of course, hit the province of Alberta, home to Canada's oil industry, which is already forecast to suffer slower economic growth, and possibly a recession, and sharply higher unemployment.

There's mildly better news for producers in today's report, and good news for consumers who paid dearly until the collapse in crude prices.

"The result is that, barring any unexpected supply disruption or major, energy-related change in policy, the market rebalancing will likely occur relatively swiftly but will be comparatively limited in scope, with prices stabilizing at levels higher than recent lows but substantially below the highs of the last three years," the IEA said.

"On current projections, the dramatic inventory build of the last few months grinds to a halt as early as mid-2015, and the market starts tightening appreciably."

Canadian production will increase to just below 5 million barrels a day in its forecast period, or a rise of more than 800,000 barrels, but low prices "are hitting its main sources for growth – oil sands projects," the IEA said.

"In Canada, where much of the [capital spending] for projects due to come online by mid-2016 has already been committed, a reduction in spending will affect projects that are planned to start up beyond that time frame," the report warned.

"In contrast to U.S. [light tight oil], Canada's growth is driven by projects with long payback periods and companies will be much more restrained in committing cash to fund expensive projects in the current price environment."

Canada's "price sensitivity" is far different from that of its neighbour to the south, and the oil sands have "comparatively high" upfront costs, with those long payback time-frames.

Which means the oil slump won't halt projects already under way.

"Producers will instead be incentivized to maximize output in a bid to recoup investment costs," the IEA said.

"New projects, on the other hand, are unlikely to be sanctioned and will likely be delayed."

The group also weighed in on the controversy surrounding new pipelines, and what that all means to future expansion, noting, among other things, TransCanada Corp.'s long-stalled Keystone XL.

"While oil prices play a major role in Canada's production outlook, a lack of export infrastructure may also pose constraints to growth," the IEA said.

"Particularly in the case of light synthetic oil, producers will need to secure new market outlets and alternatives to shipping light crude south to the United States," it added.

"These alternative options include additional capacity to ship crude to Canadian refineries on the Atlantic coast, moving it to British Columbia and possibly exporting it to Asia."

Russia, by the way, whose currency has plunged along with oil prices and which appears headed for a deep recession, is "the biggest casualty" of the crude market rout, the IEA said.

The IEA also cut its outlook for an increase in global demand, to growth of about 1.2 per cent a year, or just over 99 million barrels a day, by 2020, saying that "indeed, the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade."

Talisman hit
Underscoring all of this is a grim report today from Canada's Talisman Energy Inc., which is being taken over by Spain's Repsol SA.

Talisman posted a wider loss of $1.6-billion (U.S.), or $1.54 a share, compared to the loss of $1-billion or 98 cents a year earlier, taking a hefty hit from the oil slump.

"Our 2014 results reflect the significant progress we made throughout the year to improve the reliability and predictability of our company," said chief executive officer Hal Kvisle.

Employment lags
Even five years after the end of the recession, the economy is still 270,000 jobs short of full employment, Carolyn Wilkins, the Bank of Canada's senior deputy governor, warned in a speech today.

The economy produced an average of 10,000 new jobs per month in 2014, or roughly 3,500 less than it should at this stage in the recovery, The Globe and Mail's Barrie McKenna reports.

The central bank now estimates the economy won't get back to full capacity until late 2016.

The job gap is yet another explanation offered by the bank for why it announced a surprise interest rate cut Jan. 21 – a move that shocked analysts and sent the Canadian dollar sharply lower.

Currency wars: U.S. says don't, Poloz says I didn't
Pity the poor American officials at the G20 gathering in Istanbul today.

According to reports from the summit, Treasury Secretary Jack Lew is urging his counterparts against deliberately driving down the values of their currencies.

"Secretary Lew strongly emphasized … that we are highly focused on ensuring that U.S. workers and firms play on a level playing field and no country should use their exchange rate to increase exports," said a U.S. official quoted by Reuters today.

The U.S. dollar has been rallying, of course, while other currencies tumble and monetary policy shifts around the world.

For his part, Bank of Canada Governor Stephen Poloz said today that the plunge in his currency is the result of the country's economic fortunes, and not because of anything he deliberately said or did.

Like when he surprised the markets with a cut of one-quarter of a percentage point to his benchmark rate, sending the Canadian dollar down sharply.

"I honestly reject the notion that I'm talking down the dollar," he told reporters at the Istanbul summit, according to Bloomberg.

"It's not about what we did. It's about how the economy has behaved."

The Canadian currency has tracked oil prices lower, dipping too on the shift by Poloz and the speculation over whether a second cut is in the cards.

And, of course, the fact that the Federal Reserve is heading toward a rate hike, possibly by mid-year.

Markets are now pricing in a 40-per-cent chance of another cut when the central bank meets again next month, and a 60-per-cent chance of that happening in April.

"These expectations are sensitive to oil prices, with a failure to shift towards the BoC $60 oil forecast likely to shift the balance towards further rate cuts and drive a weaker CAD," said chief currency strategist Camilla Sutton of Bank of Nova Scotia, referring to the Canadian dollar by its symbol.

Which is sort of the point Mr. Poloz tried to drive home.

"Markets presumably look at the oil-price shock itself and would ask themselves how's the economy performing?" he said.

"If they figure that out, then they would know what we might have to do."

Target, landlords in deal
Target Canada has come to a deal with its landlords over the contentious issue of their lease sales, averting the discounter from being pushed into all-out bankruptcy, The Globe and Mail's Marina Strauss reports.

The retailer has agreed that the court-appointed monitor in the current proceedings will oversee the lease sales and take control of running the process from Target Canada, according to a court filing.

And Target has responded to landlords' concerns that the process will be delayed by setting May 15 as a deadline for completing the sale process – and no later than June 30, the filing says. By then, leases will be returned to landlords if they're not sold, it says.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 10:05am EDT.

SymbolName% changeLast
BNS-N
Bank of Nova Scotia
+0.47%51.4
BNS-T
Bank of Nova Scotia
+0.53%69.79
CADUSD-FX
Canadian Dollar/U.S. Dollar
+0.11%0.73783
TGT-N
Target Corp
+0.18%174.98
TRP-N
TC Energy Corp
+0.38%39.79
TRP-T
TC Energy Corp
+0.22%53.92

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