Category: Energy

Is Alberta’s housing market going to crash?

“Is Alberta’s housing market going to crash?” asks Manny Williams in Toronto. Calgary-based energy reporter Jeff Lewis says, “Nobody is full-out panicking just yet.” He says that’s because prices have so far not reacted much to the collapse in oil prices – “the average price of a single family home this month was $518,449, down 0.42 per cent compared to the same period a year ago, according to preliminary figures collected by the Calgary real estate board.” Lewis explains:

All signs point to a softening market, especially if oil-patch layoffs deepen. Cutbacks in the energy sector are already taming expectations, and experts say Alberta’s economy is poised to slow considerably compared to the manic growth of recent years.

Sales of single family homes plunged 38 per cent in January, while new listings shot up by about 39 per cent. That follows a weak December, during which sales fell roughly 8 per cent from the previous year and listings rose. It’s scarcely any better for condos. Sales are down 35 per cent so far this year, and listings are up a staggering 60.5 per cent compared to a year earlier.

Some Calgary realtors don’t expect a repeat of 2010, when housing demand plunged in the wake of the financial crisis. This week’s rate cuts at major banks could also buoy sales. But a sustained period of lower oil prices is sure to make would-be buyers a bit more cautious.

Earlier this month, Lewis reported:

Cracks are emerging in Calgary’s once red-hot market for commercial and residential real estate, adding to fears that rapidly sinking oil prices will trigger a broad slowdown beyond the energy sector.

After years of riding high, home sales in the southern Alberta city dropped 7.5 per cent in December from a year earlier, while new listings surged 42 per cent – the first sign of a potentially weaker market in 2015, according the Calgary real estate board. At the same time, lease rates at downtown office towers are falling and some of city’s marquee buildings are grappling with an unfamiliar problem: empty space.

Read his report here, and follow Jeff Lewis on Twitter

Why hasn’t the price of diesel dropped like gasoline?

Reader John Olson in Ottawa wrote to The Globe, wanting to know why the price of diesel – which powers his Volkswagen Jetta wagon – has not fallen to the same degree as gasoline prices, “which have sunk like a stone.” Olson notes:  “I would imagine that the higher price for the fuel must have a negative impact on the cost of goods, such as groceries.” Shawn McCarthy, The Globe’s energy reporter explains:

Firstly,  you’re right to note the difference – average gasoline prices across Canada have fallen 50 cents per litre since June peaks, while diesel prices have dropped just 26 cents, according to Kent Marketing Group’s weekly survey. While most drivers use gasoline, there has been a growing number of diesel-powered cars and trucks, which get better fuel efficiency than gasoline engines. And of course, most large trucks use diesel.

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With the plunge in oil prices, why so little relief at the pump?

The price of oil has fallen significantly in the last six months – so why aren’t Canadians feeling a great deal of relief at the gas pump? Reader @lornevic wanted to know – and it’s a good question, one that Shawn McCarthy, Report on Business’s global energy reporter was happy to answer:

Since their peak in June, oil prices have fallen nearly 30 per cent, while average pump prices across Canada are down just 15 per cent. Rip off, right?

Not really. Basing the comparison on percentages is a mistake because crude represents only one component – or about half the total value – of what we pay at the pump. You also have to factor in the refining costs, the marketing costs and taxes – the sum of which remained relatively flat as crude prices slumped.

Drivers have seen significant relief at the pump, though the exact amount depends on where you live. On average across the country, unleaded gasoline was down 21 cents to $1.19 cents per litre as of November 11 from the peak on June 24, according to the Kent Group, which puts out a weekly survey.  That’ll save you $13 on what was previously an $85 fill up.

Kent calculated that the crude cost in a litre of gasoline back in June was 67.6 cents a litre, on average for the month across Canada. By October, the monthly average fell to 56.2 cents, a drop of 11 cents per litre.

But the monthly average for pump prices was down 15.9 cents, as refiners had to accept lower margins in the fall because demand typically drops after the summer driving season.

In comparing oil prices and the cost at the pump, you also have to account for the decline in the loonie, which here in Canada served as a brake on crude’s swoon.

Oil is priced in U.S. dollars – even when it is produced in Canada – and when the loonie declines, we have to spend more Canadian dollars to purchase a barrel. Since June, the dollar has declined 5.4 per cent, and that weakened currency has robbed some of the benefit we would expect from lower oil prices.


Tale of the Tape – Changes in Crude Costs and Gasoline Prices, Canada Average

Monthly average of: June October Change
Crude Price – Cdn$ per barrel* $107 $89.36 -$17.64
Crude price – Cents per litre 67.6 56.2 -11.4 cents
Refiners’ Margin – Cents per litre 23.2 18.3 -4.9 cents
Marketing Margin – Cents per litre 7.8 9.6 1.8 cents
Taxes  – Cents per litre 40.3 38.8 -1.5 cents
Pump Price – Cents per litre 138.9 123 -15.9 cents
* A mixture of Canadian heavy oil, North American light crude and Imported light crude

What’s the OPP status on the breach of trust regarding Livingston?

Michiel M. in Toronto asked for an update on the Ontario gas plant probe story. “This story has fell to way side since the election,” he writes.

Adrian Morrow, The Globe’s political reporter covering the Ontario legislature, is following this story closely and was keen to answer this question. “The police investigation into David Livingston, former premier Dalton McGuinty’s last chief of staff, is still active,” he says. “It appears Ontario Provincial Police have not yet decided whether or not to lay any charges.” More from Morrow on the ongoing investigation:

What, exactly, investigators are doing at the moment, or what investigative avenues they are trying, is unknown. The last update from police came a few days before the election last June, when OPP confirmed they had served a document production order on staff at Queen’s Park, seeking records related to Mr. McGuinty’s office.

I asked the OPP on Friday what the status of the investigation is. Sgt. Peter Leon told me the case is “still open and ongoing.” He said there are no updates to the investigation.

As for whether there have been any other search warrants or production orders served since June, he replied: “Nothing that I am aware of.”

The background for those who haven’t been following the story: a legislative committee uncovered evidence that Mr. McGuinty’s staff had deleted emails and other documents that might have shed light on the Liberal government’s decision to cancel two gas-fired power plants at a cost of $1-billion. A report by the province’s information commissioner further alleged that Mr. Livingston had tried to wipe computer hard drives in Mr. McGuinty’s office. This led to a police investigation.

Court documents released earlier this year show police believe Mr. Livingston called in an outside information technology expert, Peter Faist, to wipe the hard drives. Mr. Faist is the partner of another former member of Mr. McGuinty’s staff.

Because Mr. Faist did not work for the government – and did not have security clearance – investigators believe Mr. Livingston may have committed a breach of trust by giving him access to government computers.

Mr. Livingston has repeatedly maintained his innocence.

At the moment, it looks like we will have to wait at least a bit longer for the conclusion to the case. But whatever the outcome is, you can be certain we will cover it.

For more from Adrian Morrow, follow him on Twitter here and read his recent stories here.

What’s happening with the price of oil?

Oil prices have fallen to their lowest levels in years, but Colin Cieszynski, chartered financial analyst in Toronto, recently wrote a piece for Globe Investor indicating the  slide may be over and a rebound possible.

There are a number of factors combining to suggest that crude oil may be bottoming out:

Response to news

Usually markets go up on good news and down on bad news, and when this doesn’t happen, traders tend to take notice. Yesterday’s big 7.1 mmbbl increase in U.S. inventories sent WTI lower but it did not break the $80.00 level, suggesting that selling may be washed out. Today’s strong response to more positive PMI and production news suggests that a change in direction may be starting.

Improved supply conditions

One of the factors that had been driving crude down was the fear of a glut of supply in the marketplace, a big change from the last several years where there had been a fear of supply disruptions. It now appears that the price has reached a point where it is starting to hurt producers.

Saudi Arabia and Kuwait recently shut production at a less profitable for “environmental” reasons, while today’s reports that Saudi Arabia trimmed back production last month and that Libya has called for an OPEC production cut were well received by traders. This indicates that should the price fall much further, we could see a greater response from producers reducing supply by shutting in production.

Improved demand factors
Another factor that had been dragging crude oil prices down was the fear that slowing economies in China and Europe could cut into crude oil demand. Today’s flash manufacturing PMI reports from China and Germany which were a bit better than expected appears to have eased some of these fears.

U.S. dollar impact fading
Crude oil is priced in USD and much of the selloff over the last few months has been in tandem with a big rally in USD on anticipation of the end of QE3 and a more hawkish Fed. The greenback has levelled off lately, taking some of the pressure off of crude oil

For more from Colin Cieszynski on the reasons oil prices are set for a rebound, read on