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Stimulus Packages, China’s Recovery, Oil Prices

Canadian Oil Prices Plummet

The global price of oil continued to plummet this week after Saudi Arabia launched a price war with Russia, rejecting production cuts amid lower demand for oil (to learn more, see our insta post here) They both instead increased their production, and with increased supply in the market, have made the prices go through the floor. 

Where are we at now?

West Texas Intermediate (WTI), the price we usually see on the news, fell to US$20 per barrel. For reference, it was US$107 per barrel in 2014. Ouch.

Western Canadian Select (WCS), the price we get for Canadian oil (it generally sells for about $15 less than WTI – read why here), fell to US$5.43 per barrel, but rose a tad on Friday (see the Btchcoin ticker above). Double ouch.

The crash in oil prices was the biggest single daily drop since 1991. I don’t know about you, but I don’t even remember 1991. 

What’s the Impact on Canadian Oil and Gas?

Well, when it rains, it pours. Canadian oil and gas is no stranger to uncertainty, crashing prices, and job losses.

For reference, it costs about $50-$60 per barrel to produce a barrel of oil through in situ production, and $75-$85 per barrel to produce a barrel through mining. 

That’s obviously a huge loss if we’re getting around $5.50 for a barrel. 

What can we expect to see going forward?

Unfortunately we can expect to see more projects being delayed or cancelled, and likely more job losses. 

That said, the government realizes this is a huge issue. The Alberta Government announced a $113 million relief in payments to the Alberta Energy Regulator. Usually, companies pay the Alberta Energy Regulator, but the government is going to cover those costs for the next six months. 

More relief packages specific to the Canadian oil and gas industry are likely to be floated in the coming weeks – Keep your fingers crossed, and stay tuned!

Look at the otters. It’s gonna be OK. Look back at the otters. It’s gonna be OK. Look at the otters again. It’s gonna Be OK.

 


OK – Anyone Ready for Some Good News??

China has reported its third consecutive day of no new locally transmitted COVID-19 cases! No doubt, this announcement is worthy of celebration…but what about the economy?

At the moment, China’s economy is recovering. We’re not at all out of the woods, but there are definitely some glimmers of hope shining through the forest. In fact, the Chinese markets are within 12% of their high since 2015.

In addition, most of the Chinese business that survived Covid-19 are back at it – in fact, over 70% of people are back to work.

China is actually anticipating economic growth for 2020. Mind you, it’s still the slowest GDP growth since 1990, but we’ll take it. 

One of the big things that’s slowing China’s economy down now is that all of its trading partners (including Canada and, well, basically everyone else) are still under total economic lockdown, and therefore buying fewer Chinese goods. 

Despite the good news, it’s worth keeping in mind that this is still the biggest global financial collapse since 1929, with China’s economic growth in Q1 at -40.8% (the 2008 financial crisis saw a growth rate of -3.2% in Canada). We don’t want to be too rosy, because the road to economic recovery will be long… but if you really squint, there’s a hint of good news.

More otters. This time basking in the (relatively) good news.

 


 

What is Canada Doing?

As we are all intimately aware, the impact of COVID-19 reaches far beyond our health – it’s having a catastrophic impact on economies around the world, not to mention our own pockets.

Canada’s plan for support stacks up closely to the US (see below). Last Wednesday (March 18), Trudeau announced the first phase of the Canadian Stimulus package, which is offering $27B in direct support to workers and businesses and $55B in tax deferrals for a grand total of $82B (that’s 3% of our GDP) in support of Canadian households. These include:

  • An Emergency Support Benefit for workers eligible for EI. The one-week EI waiting period and medical certificate requirement for sick, quarantined, or care-giving Canadians without sick pay will be waived. ($5 billion)
     
  • A new Emergency Care Benefit for those who don’t qualify for EI. This will be as much as $900 bi-weekly for up to 15 weeks. ($10 billion)
     
  • A 10% wage subsidy of up to $1,375 per employee for businesses to guard against layoffs
     
  • Support for low income Canadians through a Goods and Services Tax (GST) credit. The average Canadian will receive an additional $400 (file your taxes!). ($5.5 billion)
     
  • A boost to the Canada Child Benefit, with an average increase of $500 per family. ($2 billion)
     
  • Extension of the tax filing deadline to June 1, with deferral of tax payments to Aug 31, 2020 ($55 billion)
     
  • Moratorium on federal student loans for six months (March 30-September 30), meaning no interest, and no payments. BTW: making payments on your loan during this period won’t affect your eligibility on the loan holiday
     
  • An increase in funding for shelters so those experiencing domestic violence are not isolated at home ($50 million)
     
  • An increase in funding for homeless shelters ($157.5 million)
     
  • Additional support for Indigenous communities ($305 million)

There’s also commitments of support being made across provinces. These are a bit more targeted to each province, and can be found on every provincial website.

Stay tuned – this is just Phase 1. No one knows how much worse this is going to get, and how much more support Canada will need. Economists generally agree there is a lot more room for support from the Federal government, based both on the resources we expect Canadians to need, and the strength of Canada’s balance sheet. One thing is sure…this is just the beginning!

The otters welcome economic stimulus. Breathe In. Breathe Out.

 


 

And What is the US Doing?

With the virus causing entire businesses to collapse and putting people out of work and/or into self-isolation by the tens of thousands, the spotlight in the US has been turned to President Trump to do something.

On Wednesday, the Trump administration signed COVID-19 relief legislation into law. This multi-billion dollar emergency package is part of Congress’ drive to lessen the impact of the financial fallout caused by the virus.

The Senate is busting its butt to roll out the package, called the ‘Families First Coronavirus Response Legislation’ as fast as possible, which will see Americans benefit from:

  1. Free COVID-19 testing without citizens having to use deductibles or copayments
  2. Paid sick leave for certain employees, including those who work in an organization of fewer than 500 people and the self-employed (in the form of tax credits for their business)
  3. Unemployment aid in the form of nearly $1 billion in state grants, and also raising the amount of assistance that certain states with higher unemployment receive
  4. Nutrition assistance for those who don’t have food security

However, this is only phase two of the US rescue plan. Phase three – which the GOP have been negotiating with Democrats – is much more ambitious, promising cash payments to the equivalent of up to $1,200 for individuals and up to $2,400 for couples which will begin phasing out at $75,000 in adjusted gross income.

It would also extend the tax filing deadline, provide cash subsidies to airlines, greater access to business loans for small companies, potential student loan suspension plans and more.

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