Low Oil Prices – economic impact felt in Canada and no end in sight with tightening storage capacity in the US

    Schwaben Blog

 

March 6, 2015

 

Weekly Statistics:

Today

Week Ago Year Ago
13-Mar-15 06-Mar-15 14-Mar-14

S&P TSX

14,731.50 14,952.50

14,227.66

S&P 500

2,053.40

2,071.26

 1,841.13

DJIA

17,749.31

17,856.78

16,065.67

OIL

$45.00

$49.78

 $90.07

USD vs CAD

0.7820

0.7945

0.9022

Gold

$1,156 $1,168

 $1,382.10

The Canadian economy shed 1,000 positions last month amid declining oil prices and mounting problems in Western Canada. This led to the jobless rate climbing to 6.8% in the month of February compared to 6.6% in January. The impact of declining oil prices is evident in Canada’s natural resources sector. The sector lost around 26,000 jobs in the last two months. Provincially, Alberta, Nova Scotia and Newfoundland lost 14,000, 4,400 and 3,300 positions respectively as energy sector is battling with steep decline in oil prices, which in turn leads to fall in energy exports. We always believed that this decline in oil prices could reverse the fortunes for Canadian provinces and it is becoming evident with the passage of time. While Alberta’s  unemployment rate jumped to 5.3% from 4.5% a month earlier, Quebec added 16,800 positions (all part-time). This was the worst unemployment rate for Alberta since September 2011. According to Avery Shenfield, chief economist at CIBC World Markets, “the numbers are conveying the early stages of the headwinds to the economy from weaker oil prices”.

The oil prices continued to slide and registered sharp losses on Friday as International Energy Agency’s (IEA) monthly report stated that the glut of crude oil supplies and tightening storage capacity in US may cause prices to drop further. The prices dropped around 9% during last week. The report indicated that the oil production in US increased by 115,000 barrels a day in the month of February. Increasing inventories coupled with the danger of storage space running out could spell serious troubles for oil prices. Some analysts now believe that prices could go as low as $30 before normalizing. According to Doug King, chief investment officer of London based Merchant Commodity Fund, “the second quarter of the year is usually the weakest for demand.  The global demand is also fading as Chinese economy appears to be struggling with maintaining its growth and US dollar continues to rise against other currencies.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch

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