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Canada’s Oil Patch Goes Into Convulsions
Canada’s Oil Patch Goes Into Convulsions
Alberta, the province that has become the epicenter of Canada’s oil bust, does not yet have a budget for fiscal 2015-16. Premier Rachel Notley promised delivery by October. But it won’t be easy. Ideas are already floating around and are getting shot down. The problem: a budget crisis has set in after a sudden shortfall of C$7 billion in oil revenue.
There have been layoffs in the oil patch. Companies are retrenching. Home prices are tumbling in Calgary, the oil capital of Canada. In May, they plunged a record 3.3% and are now down 7% from their peak seven months ago.
In commercial real estate, it’s getting ugly. The number of transactions of C$1 million or more in the first quarter plummeted by 21%, and the dollar value of transactions dropped 11%, according to RealNet Canada, cited by the Calgary Herald.
Cushman & Wakefield reported that the premium office market in Calgary is “reeling from the sudden impact of downsizing companies.” Unless a miracle happens in the oil markets that sends prices back into the stratosphere, the premium office market will see vacancy rates climb to 12.4% by the end of this year, and to 15.4% by the end of 2016, the worst since the early 1990s. In the first quarter alone, a record 1.23 million square feet of office space were put back on the market as companies, mauled by the oil-price plunge and trying to stay alive, are slashing operating expenses where they can.
With impeccable timing, a flood of new space is being built and will soon come on the market. Bob McDougall, senior managing director of brokerage for Cushman & Wakefield in Calgary, explained:
“On top of low office demand and companies subletting record amounts of space, we’re in the midst of a major development cycle with about three million square feet under construction downtown. Right now, it’s a perfect storm.”
…click on the above link to read the rest of the article…
Canada Housing, Office Market Mauled by Oil, Layoffs – but Vancouver Bubble Still Soars
Canada Housing, Office Market Mauled by Oil, Layoffs – but Vancouver Bubble Still Soars
Back in December, the Bank of Canada said home prices were overvalued by as much as 30% and posed an “elevated” risk to the Canadian financial system. In January, Deutsche Bank found that Canada’s housing market was, more realistically, 63% overvalued.
In greater Vancouver, the “benchmark” price of all types of homes (detached, townhouse, and apartment) in March rose 7.2% from a year ago to C$660,700, according to the Real Estate Board of Greater Vancouver. Detached homes jumped 11.2% to C$1.05 million; and in Vancouver West, 12.3% to a breathtaking C$2.4 million.
Those are the Board’s “benchmark” prices. The average price for detached homes in Vancouver soared 16% from a year ago, surpassing $1.4 million for the first time. Transactions skyrocketed 54%; supply plunged 15%. Prices were doped by low interest rates, limited supply, and foreign investors. This market is hot.
But the oil patch of Canada is skidding into serious trouble.
“The recent international price war over oil has demonstrated the risks and dangers of relying on energy revenue to fund public services,” Alberta’s government explained on Thursday, as it presented a C$43.4 billion budget for fiscal 2015/2016. It projects arevenue decline of C$5.6 billion!
It’s “simply irresponsible” to rely on unstable oil revenues “to fund health, education, and other vital public services that Albertans depend upon,” the government said.
And things would change. Energy revenue would from now on – if they ever return to prior levels – be treated as “windfall” that would at least in part go into savings. And there would be a slew of new taxes and fees, such as a bump in gasoline taxes, steeper income taxes for high-income earners, and a new health-care levy. With these measures, the government hopes to balance the budget three years from now.
…click on the above link to read the rest of the article…
The Canadian Housing Bubble Has Begun To Burst
The Canadian Housing Bubble Has Begun To Burst
Don’t look now but slumping crude prices are hitting the Canadian housing market like a freight train. Energy accounts for 10% of Canadian GDP and around 25% of exports and the swift fall in oil prices is having a profound effect in the nation’s oil producing regions. Take Calgary for instance, where single-family home sales fell 34% last month. As the following chart shows, Alberta derives some 30% of its provincial revenues from energy royalties and as one TD analyst quoted by the Calgary Herald recently noted, “the effects of significantly lower oil prices had already turned up in resale activity, with sales in Calgary and Edmonton down more than 40 per cent and 30 per cent respectively, from October to January [and] as resale activity slows, prices usually follow.”
Depressed crude prices will create a $7 billion annual revenue shortfall for the province while GDP growth, which had been running at around 4%, is expected be just under half that this year, withsome analysts predicting the economy will contract. Here’s CIBC’s outlook for instance:
The Alberta government’s own assessment of the economic situation is deteriorating rapidly.
From the Alberta fiscal update:
…click on the above link to read the rest of the article…
Layoffs, Spending Cuts Permeate Alberta’s Oilpatch On Quarterly Results
Layoffs, Spending Cuts Permeate Alberta’s Oilpatch On Quarterly Results
CALGARY – There was a splattering of red ink in the oilpatch Thursday, as the steep drop in oil prices weighed on the bottom lines of some of the energy sector’s biggest names in the last three months of 2014.
Oilsands producer Cenovus Energy Inc. (TSX:CVE) said it’s cutting its headcount by 15 per cent, mostly contractors, amounting to 800 positions. Husky Energy Inc. (TSX:HSE) also said there’s been a “small” reduction in its workforce, but declined to get more specific. And Precision Drilling Corp. (TSX:PD) said there’s not enough work these days to keep its crews busy.
“I believe we are in for much greater volatility in oil prices for the foreseeable future and that’s why you’ve seen Cenovus preserve cash by moderating our growth and reducing our workforce,” Cenovus CEO Brian Ferguson said.
Crude prices have been at around the US$50 a barrel mark for much of this year so far, after having hit US$107 a barrel last summer. The drop intensified toward the end of 2014.
Cenovus posted a net loss of $472 million, widening from the previous year’s loss of $58 million.
The results for the quarter included a $497-million charge related to its Pelican Lake oil project in Alberta due to the drop in oil prices and a slowing of the development plan for the project.
Some expansion work at Cenovus’ flagship Foster Creek and Christina Lake oilsands projects is winding down, though phases that are further along in development are continuing as planned.
…click on the above link to read the rest of the article…
“The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch”
“The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch”
Two weeks ago we reported that “the next victim of crashing oil prices has been identified: housing“, particularly non-residential construction among the energy producing regions, where the capex collapse reality is already being felt far and wide. Eventually, once the overall economy of these same oil producing regions is impacted sufficiently, the pain would spread to residential housing as well, as the energy boom that kept the local economies humming for years, turns to a bust. But while the US patiently, and nervously, awaits the outcome of the crude crash, one place is already starting to suffer the consequences of the price collapse is Canada’s energy Mecca, Calgary, where as the Financial Post reports, “the stage has been set for a massive correction in the oilpatch.”
To be sure, just like with US production, nobody is quite ready to pull the plug just yet and indeed, “the price correction hasn’t happened”… yet. “The average price of a home sold in January was $460,933, down 0.5% from a year ago. The median sale price climbed 1.1% from a year ago to $417,500.”
But it’s just a matter of time, and as FP adds, “the stage has been set for a massive correction in the oilpatch.New listings jumped 37% from a year ago while the overall inventory was up 113.4% during the same period. A year ago, based on market conditions at the time, there was 1.52 months of supply in the system. At the end of last month, that number was 5.29 months.”
…click on the above link to read the rest of the article…
Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years
Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years
For the 2nd month in a row, home prices in Calgary – corporate hub of Canada’s oil industry – have fallen. This is the biggest 2-month-drop in almost 2 years (and comes on the heels of yesterday’s news that Suncor is slashing jobs and capex). As Bloomberg reports, Bank of Canada Deputy Governor Tim Lane said yesterday development of the more expensive deposits are threatened by lower crude oil prices. “The dive in energy prices will put pressure on house prices in the Western provinces in the coming months,” warns one economist and as the following chart shows, more pain is likely...
It appears the price of homes in Canada’s most important energy region are extremely correlated with a lagged oil price… which suggests a lot more pain is to come…
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As we explained previously, this won’t end well…
In Canadian debt we trust
There was an inflexion point for US markets when household debt surpassed household income. People kept saying it was a liquidity crisis initially but it was truly a solvency crisis. People took on too much debt and were walking on a financial tightrope. In the US, this peaked above 120 percent. Canada is well on its way above 160 percent:
…click on the above link to read the rest of the article…
