These are stories Report on Business is following Thursday, Dec. 4, 2014.
Crude slides again
The oil price war is escalating.
There was some confusion in the market today, but the bottom line is that Saudi Arabia is slashing its January prices in the United States and Asia.
The new prices from Saudi Aramco come hot on the heels of the Saudis blocking a production cut by OPEC nations, which sparked a plunge in crude prices, as the country seeks to stay competitive and defend its market share.
Today's cuts sent oil prices sliding again.
The moves are key to Canada, of course, given its reliance on oil production. Already, economists say, Canada can expect a small hit if the rout in the market is sustained.
It’s a tale of two economies, however, because Alberta would suffer while central Canada enjoys lower energy costs and the benefits of a currency sliding along with oil prices.
At a minimum, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, today’s move by Saudi Arabia adds to the sentiment of lower oil prices for longer.
The question now, she said, is whether the Saudis are willing to continue to hold prices down in a bid to pressure other global producers, such as the United States, which is enjoying a shale boom.
“If they can start to impact investment in the sector, then that begins to pressure long-term supply,” Ms. Sutton said.
“This is a long-term game.”
Others observers agreed, though, as The Globe and Mail's Shawn McCarthy reports, some analysts said today’s move by the Saudis was simply an adjustment to the decline in the market.
The price cuts amount to between 10 cents and 90 cents a barrel for the United States, and a heftier $1.50 to $1.90 for Asian buyers.
The way that works is via discounts against local benchmarks.
“With increasing regularity the question ‘can oil trade below $60’ is being asked on trading floors in the City, as the bearish sentiment hanging over the commodity shows no sign of easing,” said market analyst Alastair McCaig of IG, referring to London’s financial district.
“Follow-up comments from OPEC members over the week have given little reason to believe that the market oversupply will be re-addressed any time soon.”
Scotiabank’s Patricia Mohr, a colleague of Ms. Sutton’s and a leading Canadian commodities analyst, projected after the OPEC decision last week that the move “spells a period of low oil prices,” at least through next year and possibly longer.
“In the absence of a slowdown in U.S. shale development or production cuts in Russia or Mexico (which these countries are not willing to implement), supply and demand conditions for oil in 2015 will remain over-supplied,” Ms. Mohr said.
Canadian producers, though, are protected somewhat by the lower dollar and the fact that “oil plays in Western Canada are on average lower-cost than in the United States, partly due to royalty credits and a more flexible royalty system.”
Nonetheless, she forecast that drilling in Western Canada could decline by 15 per cent next year.
Some producers – Venezuela is a key one – want to boost prices. But the Saudis appear prepared for a longer joust.
The currencies of Venezuela, Russia and Nigeria, for example, have been routed amid the price drop. The Canadian dollar has also been affected, but to a far lesser extent.
And today, Russian President Vladimir Putin railed against “speculators” and vowed to fight back.
While the price slump will ding producers like Canada, and others like Venezuela and Russia far more, it’s still expected to buoy global economic growth next year.
“Looking forward, the $45 slump in the price of Brent crude since June should provide a net boost to demand,” Capital Economics said in a report today.
“Indeed, it will save consumers in the four major advanced economies over $200-billion a year in motor fuel costs alone,” the group added, referring to the United States, the euro zone, Japan and Britain.
- Alberta money man plugs a sales tax. Can you hear the laughs in Toronto?
- Putin vows to punish speculators pushing down ruble's value
- Jeffrey Jones and Carrie Tait: For companies in pain, oil's fall hits harder
- The 'most mismanaged' oil economies are in deep trouble
- Colin Freeze: As oil prices tank, Alberta boomtown Fort McMurray yields to caution
- Oil's plunge to buoy global economy: A $1.3-trillion boost to consumers
- Jacqueline Nelson in Streetwise (for subscribers): AIMCo appoints new CEO
- Jeffrey Jones in ROB Insight (for subscribers): Speculators play smaller role in latest oil price drop
Toronto home prices surge
The Toronto and Vancouver housing markets are pushing ever higher.
The question now is whether the boom town of all boom towns, Calgary, will start to slow amid the rout in the oil market.
Home sales in Toronto rose 2.6 per cent in November to 6,519, according to the Toronto Real Estate Board today, while the average price surged 7.4 per cent to $577,936.
The MLS benchmark price rose even faster, by 7.7 per cent.
“The robust average price growth experienced throughout 2014 has been fundamentally sound, with demand high relative to supply,” Jason Mercer, the group’s director of market analysis, said in a statement.
“Strong competition between buyers has exerted upward pressure on selling prices,” he added.
“Barring a substantial shift in the relationship between sales and listings in the [Greater Toronto Area], price growth is expected to continue through 2015.”
The realtors group noted that “the supply of listings remained constrained,” with active listings down from a year earlier by the end of last month.
So far this year, average Toronto prices are up 8.4 per cent from the same period of 2013.
As The Globe and Mail’s Brent Jang reports, home sales in Greater Vancouver surged 8.4 per cent in November while the benchmark price rose 5.7 per cent and listings declined by about 7 per cent.
Calgary, whose housing market has been the hottest in the country, is the question mark: Sales rose 3.9 per cent last month, and the benchmark price climbed by 8.5 per cent.
But that, noted senior economist Sal Guatieri of BMO Nesbitt Burns, marked a cooling as listings rose.
“If oil prices stay at current levels, this is likely only the start of Calgary’s housing slowdown, as the rapid influx of migrants from other provinces will cool,” Mr. Guatieri said in a recent report.
Calgary, Vancouver and Toronto are the Canadian cities most watched for their hot prices, as others settle down.
- Brent Jang: Price for typical detached home in Greater Vancouver nears $1-million
- Canada may skirt housing dip (if we're lucky): Société Générale
- Richard Blackwell: Housing market ‘modestly’ overvalued, CMHC says
- Canada's housing market a '3-city show' as sales score best October since 2009
- Bank of Canada raises red flags over Toronto, Vancouver, Calgary housing markets
Christie in Calgary
New Jersey Governor Chris Christie is in Calgary today, where he’ll talk about oil, of course, before heading to Ottawa tomorrow to meet Prime Minister Stephen Harper.
Mr. Christie is a supporter of the proposed, and delayed, Keystone XL pipeline.
He’s also a Republican presidential possible, who’s coming off a scandal related to lane-closing at a toll stop in Fort Lee, N.J., that had commuters fuming.
(But I don’t think either the Trans-Canada Highway or the QE2 have any traffic issues, so Calgary should be safe today.)
Enbridge shares climb
Shares of Canada’s Enbridge Inc. are rising sharply in pre-market action in the wake of its restructuring and dividend hike late yesterday.
As The Globe and Mail’s Jeff Lewis reports, the pipeline company unveiled a $17-billion overhaul and a dividend gift to stockholders by way of a 33-per-cent increase.
Enbridge also projected average annual dividend increases of between 14 per cent and 16 per cent over the next three years.
The centrepiece of the restructuring would see Enbridge’s Canadian liquids pipeline operation transferred to Enbridge Income Fund.
Enbridge shares were up almost 13 per cent per cent with about 30 minutes to go before the New York open.
One up, one down
The earnings parade among Canada’s big banks continues today with two more, one of them matching expectations and the other falling short.
As The Globe and Mail’s Tim Kiladze reports, Canadian Imperial Bank of Commerce posted a dip in fourth-quarter profit to $811-million from a year earlier, or $2.24 a share, adjusted, which was just a cent short of what analysts were expecting.
CIBC also hiked its dividend.
Toronto-Dominion Bank, on the other hand, posted a jump in profit to $1.7-billion, or 98 cents a share, adjusted, but missing the mark where estimates were concerned.
- Tim Kiladze: CIBC quarterly profit slips 2% on capital markets, raises payout
- Tim Kiladze: TD Bank’s quarterly profit rises but falls short of expectations
Central banks hold
The European Central Bank and the Bank of England are both holding the line on interest rates.
Both held steady today, as expected.
But all eyes were on the ECB for signs of whether it’s poised to pull out the big gun of quantitative easing.
As our European correspondent Eric Reguly reports, it didn't, but chief Mario Draghi said everything will be assessed, again, next quarter, and that the ECB is prepared for further stimulus.
“I remain in the ever-shrinking camp that does not believe we will ever see quantitative easing from the ECB, and if I’m wrong, it will be an absolute last resort once all other options are exhausted, which is not even almost the case,” said market analyst Craig Erlam of Alpari in London, referring to the asset-buying stimulus program known as QE.
“There is just too much opposition in Germany to QE and policy makers are too split on the political debate on whether it constitutes government funding,” he added.
“In my view, we would have to see negative inflation readings and dangerously low inflation in Germany before it becomes a realistic possibility.”
Streetwise (for subscribers)
ROB Insight (for subscribers)
- Brookfield, Qatar sweeten offer for Canary Wharf owner to $4.6-billion
- Uber's latest funding round values ridesharing company at $40-billion
- Barnes & Noble to buy back Microsoft's stake in Nook
- Gildan warns of first-quarter loss, cuts prices to boost demand
- U.S. jobless claims fall, unwind prior week's increase
- Best Buy to exit Chinese market
- Cost cuts help Sears Holdings post smaller-than-estimated loss
- Dollarama profit jumps 18.4%