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Saturday, December 13, 2014

As oil prices skid, ‘panic is beginning to set in’ as bad news avalanches [specially from Chinese slowdown]


As oil prices skid,panic is beginning to set in’

These are stories Report on Business is following Friday, Dec. 12, 2014.
 A worker pours liquid oil into a barrel at the delayed coker unit of the Duna oil refinery operated by MOL Hungarian Oil and Gas Plc in Szazhalombatta, Hungary, on Tuesday, July 9, 2013 (Akos Stiller/Bloomberg)
Oil, markets sink
As analyst Alastair McCaig puts it today, “panic is beginning to set in” across financial markets as the collapse in oil prices deepens.
His comments came as equity and currency markets faced fresh turmoil, with crude slipping further below the $60-a-barrel mark on a new price forecast and more bad economic signals from China. Iran’s oil minister added fuel to the fire with his suggestion that there may be $20 to go still where crude is concerned.
Stock prices sank, while the Canadian dollar plumbed new depths.
“With the Iranian oil minister Bijan Namdar Zangeneh now stating that he can see oil being squeezed down to $40 a barrel, panic is beginning to set in,” said Mr. McCaig of London-based IG.
“Overnight, Chinese industrial figures continued to tumble, encouraging BHP Billiton to lower its expectations for Chinese steel consumption and alter its production levels accordingly,” he added.
On top of that, the International Energy Agency cut its projections for demand for oil next year.
“Each bounce brings forward the suggestion that a bottom has finally been found, but then new sellers appear to take the price lower once again,” market analyst Chris Beauchamp, also of IG, said as crude slipped again, its losses for the week adding up to about 12 per cent.
“Demand bearishness has been added to the expectations of significant supply levels, with oil-supplying nations reduced to squabbling over a diminishing market.”
Investors reacted by fleeing.
Japan’s Nikkei actually gained 0.7 per cent, but stock prices fell in Europe and North America.
London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 2.5 per cent and 2.8 per cent.
The S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite also sank. The Dow tumbled the most, off by 308 points, or 1.7 per cent - while the TSX lost 173 points, or 1.2 per cent.
The Canadian dollar, whose fortunes are tied to the price of oil, touched a low of 86.28 cents U.S. The high wasn’t all that much higher, at 86.83 cents. By late afternoon, the currency sat at 86.41 cents.
Oil prices have staged a stunning decline since the summer, plunging by more than 40 per cent and knocking oil-dependent economies like Norway and Russia, whose currencies, like the Canadian dollar, are under exceptional pressure.
Big oil companies – Canada’s Cenovus Energy Inc. is but one – are slashing spending while economists fast revise their forecasts for economic growth.
And the rout has taken its toll on shares of energy companies across the globe.
“It's been another bad week for energy stocks, with oil prices falling more than 9 per cent as OPEC - which accounts for one third of global oil production - cut its 2015 demand forecasts to the lowest in more than a decade, while at the same time its most influential member, the Saudis, continued to deny that there would be any slowdown in production,” said market analyst Craig Erlam of Alpari.
“It's a battle over market share at the moment and no one wants to back down. The supply glut in the oil market saw inventories in the U.S. grow again this week, helping to further weigh on oil prices. The decline in oil prices is showing no signs of slowing which would suggest that $50 a barrel is quite likely, and soon.”
Where the loonie is concerned, the currency is now at its lowest in about 5 and one-half years. And it’s likely we haven’t seen the last of the slide.
“For Canada the impact is negative for the oil sector, investment, the fiscal balance and growth; a stronger U.S. economy and weaker CAD will mitigate some of the downside; however all in all it is net negative,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia, referring to the Canadian dollar by its symbol.
“As oil prices fall CAD is also likely to fall,” she added.
“However, the relationship is not one for one. Since the recent highs in oil prices, June 30, WTI oil is down 45 per cent, while CAD is down 7 per cent … The lower oil prices fall the more vulnerable CAD becomes. We expect CAD to trend lower in the near-term and early 2015, and to close 2015 at lower levels than it closes 2014.”
The loonie, as Canada’s dollar coin is known, is “caught in a massive oil slick,” said chief technical analyst George Davis of RBC Dominion Securities.
“The uninterrupted selloff in crude oil prices remains at the forefront as a key market driver, causing the commodity currencies to feel the brunt,” he said.
Yesterday, Norway’s central bank cut interest rates by one-quarter of a percentage point over fears what the oil collapse will mean to the economy, while Russia’s central bank hiked by a full point to defend the battered ruble and stem an outflow of capital.
One of the big issues, said Mr. McCaig, is the threat of deflation, and what that could mean. That’s a huge issue particularly in Britain and the troubled euro zone.
Of course, it all plays out in different ways.
Economists, for example, are cutting their outlook for Alberta, which is home to Canada’s oil patch, while the central provinces of Ontario and Quebec should benefit from lower energy costs and the weaker currency.
“Lower oil prices are just like a tax cut for consumers so the expectation is that some of that wealth effect will be spent,” said analyst Jasper Lawler of CMC Markets in London.
“There is typically a lag between when petrol prices to when people start to feel richer.”
(I got gas in Toronto this morning at $1.009 a litre. No, I didn’t actually feel richer, but I did fill up the tank.)
Repsol eyes Talisman
Shares of Talisman Energy Inc. surged today as Spain’s Repsol SA moves ever closer to a multibillion-dollar deal for the Canadian oil company.
As The Globe and Mail’s Jeffrey Jones reports, industry sources and news reports indicated that talks are well under way and could be wrapped up in days.
The Financial Times said today the deal could be valued in the range of $6 a share to $8, meaning more than $7-billion in the middle of that spread.
Talisman, which has been shedding assets, said this week it had been approached by Repsol and others, but did not elaborate.
Amaya probedQuebec’s securities watchdog is investigating trading activities in the shares of Amaya Gaming Group Inc., the Montreal-area online gambling company whose stock has soared after a $4.9-billion (U.S.) deal to buy the PokerStars franchise, The Globe and Mail's Bertrand Marotte reports.
Amaya said today it is co-operating with the Autorité des marchés financiers (AMF), Quebec’s securities regulatory authority, in a probe into trading activities in Amaya securities related to the acquisition earlier this year of Oldford Group Ltd., parent of Rational Group Ltd., owner of PokerStars, the world’s biggest online poker company.
“To the corporation’s knowledge, this does not involve any allegation of wrongdoing by the corporation," Amaya said.
Manulife Financial and brokerage firm CanaccordGenuity said they are helping the AMF in its investigation.
An RCMP spokesman in Montreal said the police force assisted the AMF in the form of security during visits to Amaya offices with search warrants but is not part of the probe.
Home prices dip in month
You can’t consider Canada’s housing market a single market, but on a national basis, home prices fell month-over-month in November for the first time in a year.
The Teranet-National Bank home price index shed 0.3 per cent last month, compared to October, according to fresh numbers released today.
Prices slipped in eight of 11 markets measured, rose in just one and were flat in two others.
On an annual basis, prices were still up by 5.2 per cent, though that marked a drop from October’s 5.4 per cent.
And it was highlighted again by Calgary, where prices surged 9.2 per cent annually, and Toronto, at 7.3 per cent.
Hamilton and Edmonton saw gains of 6.2 per cent, while Vancouver, which along with Calgary and Toronto has been the focus, gained 5.9 per cent.
On a monthly basis, only Edmonton saw an increase, of 1.1 per cent, while Vancouver and Hamilton came in flat.
Prices fell 1.6 per cent in Halifax, 1.5 per cent in Quebec City, 1 per cent in Montreal, 0.7 per cent in Winnipeg, 0.6 per cent in the Ottawa area, 0.3 per cent in Toronto and Victoria, and 0.2 per cent in Calgary.
“It was the first time in two years that prices were up on the month in only one of the markets surveyed,” said senior economist Marc Pinsonneault of National Bank of Canada.
Just this week, the Bank of Canada said a new model that is has devised suggests, for the first time, that Canadian home prices may be inflated by between 10 per cent and 30 per cent.
While that’s a wide range, it nonetheless speaks to a frothy nature.
“While home prices in Canada's 11 major cities may have edged down slightly in November, they still remain quite elevated, hovering near record highs,” said economist Dina Ignjatovic of Toronto-Dominion Bank.
“Moreover, while the decline was fairly broad based, prices in several key cities are well up from year-ago levels,” she added.
“Going forward, solid momentum in the job market over the past few months, combined with an ultra-low interest rate environment should continue to support the housing market in the near term.  However, as interest rates creep up in the latter half of next year and into 2016, affordability will erode, resulting in a moderation in home price growth.

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