What’s Happening (or not) with Fossil Fuels?
Canada’s oil and gas sector made headlines this week, but for basically the same reasons as usual – (1) pipelines aren’t being built, and (2) Bill C-69 is still stuck in the Senate.
The first point relates to the narrowing of the price differential between US and Canadian crude. For months, Canadian crude was selling for about $50 less than American varieties. The main reason was that Canadian exporters couldn’t get their crude to international refineries and markets – both pipelines and rail cars were at capacity. Think: oversupply = less demand = lower prices.
In response, Alberta Premier Rachel Notley ordered producers to a production cut of 325,000 barrels a day – or about 8.7% of Alberta’s total daily production. The result: As of this week, the differential had collapsed to a healthier margin of $9.
Not everyone is happy though. Many industry representatives and analysts have noted that production cuts should only be a temporary measure – more sustainable solutions are necessary. Notley agreed, stating, “we’re not out of the woods yet, but this temporary measure is working…while we work on longer-term solutions, like our investment in rail and our continued fight for pipelines.”
The second piece of news that had people in the industry talking is intrinsically linked to the root of the first: the Senate is back in session and Bill C-69 is up for debate.
Bill C-69 is a ginormous (392 pages), complicated, and controversial piece of legislation. Boiled down, it proposes changes to environmental assessments for major infrastructure project. Think: pipeline approvals.
Proponents say the bill makes good on the Liberal’s promise to meaningfully engage with indigenous stakeholders and takes a longer-term view on environmental impact. Opponents say C-69 will hold infrastructure projects up under review and uncertainty for so long that the Canadian natural resource sector will become totally uncompetitive.
Both arguments are oversimplified, but at the end of the day, the Bill proposes so many changes to policy, including the creation of entirely new institutions, that it’s difficult to predict precisely how stakeholders will be affected – positively or negatively.
It’s now up to the Senate to have the final say on whether the Bill is approved. It’s hard to predict when/if the Senate will decide on C-69 before the summer break. Despite the Liberal’s eagerness to have the Bill rubber stamped before October’s election, the Senate is notorious for dragging out debates.
Meanwhile, oil and gas stakeholders in Calgary rely on a decision on C-69 in order to go ahead with major investment decisions. It’s almost like Senators are giving Albertan’s another excuse to hate on the Red Chamber…
Honey we shrunk the economy….
For the second time. In three months. Ugh.
This week, Statistics Canada reported that our country’s real Gross Domestic Product (GDP) dipped by 0.1% in November. This retraction follows a rollercoaster few months, which saw GDP fall by 0.1% in September and subsequently rise by 0.3% in October.
There are a few culprits to blame here. First, there was a significant fall of 1.1%in the wholesaling industry, primarily in the machinery and equipment faction. Second, Alberta’s struggling oil and gas sector dragged down numbers, with the industry shrinking by 1.6% and the finance sector retracting by 0.7%. Yikes.
In response to these not-so-great numbers, the Bank of Canada (BoC) will more-than-likely be “decidedly on hold” for much of 2019, according to predictions by the Chief Economist of CIBC World Markets, Avery Shenfeld. This means we can’t expect BoC’s current interest rate of 1.75% to receive a boost any time soon.
We’re not going to lie – this all sounds like a decently depressing report. However, Senior Deputy Governor of the BoC Carolyn Wilkins indicates that sluggish performance of oil and gas and housing is temporary, and it’s possible that we’ll see growth again in Q2 of 2019.
Jobs Jobs JOBS
Remember when we told you Canada’s unemployment rate is currently sitting at 5.6%, the lowest it’s been in more than 40 years? Sounds like good news, right? Well, not exactly…
Despite low Canadian unemployment numbers, and subsequent labour shortages, many jobless Canadians are finding it hard to secure employment. To top it off, hourly wage growth is slowing. It’s a confusing situation, particularly when job vacancies are sitting at more than 550,000. So why is this happening and what does it all mean?
In an interview with Connie Walker for CBC’s The Current, the BoC’s Senior Deputy Governor Carolyn Wilkins (her again… musta been a rough week) explains that the oil price crash in 2014 is partially to fault for slumping wages. A skills mismatch could also be to blame, with employers reporting a lack of applicants with ‘the right’ skills (think STEM and the trades), coupled with workers reluctant to move companies for higher-paying positions and apprehensiveness when it comes to relocation for work.
Even so – taking everything into consideration, Wilkins indicates that with our tight job market, low unemployment rate and demand for labour, wages should be higher than they are. However, it’s not all doom and gloom. Citing the BoC’s predictions about an upswing in the second quarter of 2019, Wilkins sees wages moving upwards too. For the sake of our credit card statements, we should hope so.