AMBROSIE SITS DOWN WITH FANS
Prime Minister Justin Trudeau’s trip to Calgary that spurred a prooil rally linked to the brutal price differential should have underscored the urgency of the situation and need for federal action, says Premier Rachel Notley.
“This is a critical time, so the Government of Alberta will do what it needs to do, whether we do it by ourselves or with support from Ottawa ... which has the most agency and authority over the ridiculous situation we find ourselves in right now,” she told reporters Friday. “I would suggest it might be reasonable for them to come to the table.”
Trudeau — who started his Calgary visit at an affordable housing announcement Thursday — said the differential is “very much a crisis.”
“There is no question that folks in Alberta, folks here in Calgary, are living through extremely difficult times,” he said.
The $45 price discount on Alberta barrels of Western Canadian Select crude compared to West Texas Intermediate in the United States is costing the Canadian economy billions, though estimates vary. The province pegs the losses at around $80 million per day.
Notley asked Ottawa to increase crude-by-rail capacity in an effort to curb the oil glut, but officials haven’t officially responded.
She added that reports from Ottawa that increasing rail shipments would do little short term are “simplistic.”
“In fact there is value to this investment, not only from the most immediate perspective but also as a hedge,” she said.
Crude-by-rail shipments increased to a record 269,829 barrels per day in September, but the differential continued to grow.
Notley said she wanted to thank people who showed up in Calgary Thursday to “express their views in a non-threatening way.”
“I told people I was expecting the prime minister would leave Alberta far more seized of the urgency of the matter than when he arrived,” she said. “I would like to say that many Albertans contributed to that outcome.”
Notley is slated to travel to Ottawa and Toronto next week, but no meeting with Trudeau is scheduled.
“We are having some fairly intense conversations between officials,” she said.
Trudeau said the federal government is doing what it can to get the Trans Mountain pipeline expansion built, which would triple its capacity to carry oil to tankers on the West Coast.
He also said his government is also allowing companies to write down capital investments to help the oilpatch and he would meet with industry officials to see what else Ottawa can do.
Earlier this week, Notley appointed three envoys to work on short-term solutions to close the price gap. The Canadian Association of Petroleum Producers estimated that the differential in oil pricing has cost Canada at least $13 billion in the first 10 months of 2018.
I would suggest it might be reasonable for them to come to the table.
Cheap Alberta oil is giving economists second thoughts about the next Bank of Canada rate increase.
Considered a sure thing only a couple of weeks ago, doubts are beginning to emerge about whether the central bank will hike in January without a rebound in slumping prices for Canadian heavy crude. In reports over the past 24 hours, Toronto-Dominion Bank and Bank of Montreal have put asterisks on their calls for a move, while swaps trading suggests investors are also paring bets.
Should weakness persist, “we would expect the Bank of Canada to hold off on raising its policy interest rate until there is further stabilization in oil prices,” Toronto-Dominion Bank economists Omar Abdelrahman and Brian DePratto wrote in a research note Friday.
Western Canada Select crude — the main blend sold by the oilsands — closed at US$13.46 a barrel on Nov. 15, the lowest in Bloomberg data since 2008. Its discount to U.S. benchmark crude exploded to as much as US$52.40 a barrel last month, also a record.
All but one of 14 economists recently surveyed by Bloomberg News expect a rate increase in the first three months of next year. Odds for a hike by January have fallen to about threequarters, from being fully priced in earlier this month, swaps trading suggests.
Bank of Canada governor Stephen Poloz has hiked the policy rate five times since mid-2017, most recently with an October move, amid a strong economy.
DePratto said that Poloz will have to “acknowledge” the strains on the industry at the central bank’s next rate decision on Dec. 5. Despite the caution, TD is anticipating oil prices will recover and the Bank of Canada will raise rates in January.
Canada’s heavy crude discount could narrow to around US$20 a barrel over the next few quarters as temporary supply problems fade, DePratto said in his note. That would allow the Bank of Canada to focus on strength outside the energy industry that has pushed inflation above its two per cent target.
Bank of Montreal’s chief economist, Doug Porter, said he would consider cancelling a call for a January hike if Canadian oil discounts persist, adding some investors are underestimating the risks. “The spread is so extreme, the cries of pain from Alberta are so loud, I don’t think they can just put blinders on and carry on as if nothing ’s changed,” he said from Toronto on Thursday.
Others remain confident there is a strong case for tighter policy in January even with the weakness in oil prices. Energy is a smaller share of the economy than in 2015 when a bigger crash led to rate cuts, and the central bank’s favoured survey of business conditions signals healthy growth, according to Josh Nye, an economist at Royal Bank of Canada. “The focus is going to remain on the national picture, but it’s a tough balancing act when some provinces aren’t doing as well,” Nye said Thursday.