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Gas prices ‘way beyond’ where oil rebound should have them: BMO
It’s not just you: Gas prices are much higher than they should be, energy experts say
Gas prices are up by more than a third since the start of the year, a figure much higher than one would expect based on the slight rebound in oil prices, Bank of Montreal’s chief economist says.
Doug Porter noted Thursday that while everything connected to crude oil has looked execrable since the slowdown that started last fall, Canadian gas prices have been especially loopy because of the impact of the Canadian dollar.
A lot of the gasoline used in Canada is refined and processed in the U.S., where refineries price the base commodity in U.S. dollars. That makes Canadian pump prices doubly sensitive because they are heavily impacted by the value of the Canadian dollar.
If you balance out the impact of currency fluctuations, “converting oil prices into Canadian-dollar suggests that the jump in gasoline has gone way beyond the move in crude,” Porter wrote. “So what’s up?”
It’s a question many Canadians have been asking themselves, with the average price of a litre of gasoline at $1.20 across the country. Porter noted there are indeed plenty of valid reasons for gas prices to be up a bit. In addition to the small rebound in crude oil, there are seasonal factors at play.
“In each of the past two years, the annual highs for gasoline prices were hit in the fourth week of June,” Porter said. We are right on track for that to happen again this year.
Demand is up
And demand for gasoline is legitimately higher too. Phil Flynn, the senior market analyst at energy research firm Price Futures Group in Chicago, said cheap oil prices last fall compelled most Americans to do what they normally do when that happens — drive more. “When oil prices crashed it stirred demand,” he said in an interview. “It’s the oldest story in the market.”
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Oil rally makes loonie world’s strongest currency this quarter, BMO says
Canadian dollar over 83 cents US Tuesday, up from 78 cents 6 weeks ago
After cratering along with the price of oil in January, the Canadian dollar has quietly been mounting a rally and is now the world’s best-performing major currency in the past three months, Bank of Montreal said Tuesday.
In a brief note to clients, the bank’s chief economist, Doug Porter, observed that after losing nine per cent of its value in dropping from 86 cents US to 78 in January while oil was in freefall, the loonie essentially treaded water until the middle of March before mounting a comeback.
On Tuesday, the loonie was changing hands at 83.11 cents US, up almost half a cent on the day, before sinking back to 82.84 at the close. Six weeks ago, the loonie was at 78 cents, and that modest rally has been enough to make the loonie the best currency investment in the world since the start of February.
Changing fortunes
“It’s still been a tough year just because it was a brutal January,” Porter said. “But the loonie has had a wonderful spring after a tough winter.”
Evened out over the whole quarter, the loonie is up almost four per cent over the past three months. That’s normally nothing to write home about, but it’s almost twice as good as the second-place New Zealand dollar. It’s also much better than the British pound, the Swiss franc, the euro and the Japanese yen, all of which are in negative territory over that time span.
The reason for the loonie’s strength is a complex mix that includes a pullback in the U.S. dollar that had been gaining strongly, and a resetting of expectations as currency markets think it’s now less likely for the Bank of Canada to cut rates again.
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Resource Dependence Could Prove Fatal For Canadian Economy
Resource Dependence Could Prove Fatal For Canadian Economy
Low oil prices are threatening the health of Canada’s oil and gas sector, which in turn, is causing turmoil in Canada’s economy as a whole.
The fall in oil prices are forcing billions of dollars in spending reductions for Canada’s oil and gas industry. In February, Royal Dutch Shell shelved plans for a tar sands project in Alberta that would have produced 200,000 barrels per day. Last year, Petronas put off plans to build a massive LNG export terminal on Canada’s west coast. Moody’s recently predicted that very few of the 18 proposed LNG projects in Canada will be constructed. Most will be cancelled. The oil industry is expected to lose 37 percent of its revenues in 2015, or a fall of CAD$43 billion.
That is bad news for Canada’s oil and gas sector. But even worse, Canada’s overdependence on oil and gas will threaten its broader economy now that the sector has gone bust. The severe drop in oil prices has made the Canadian dollar one of the worst performing currencies in the world over the past year. The loonie used to trade at parity to the U.S. dollar, and even appreciated to a stronger level a few years ago, but now a Canadian dollar only gets you less than 80 U.S. cents.
Related: Top 12 Media Myths On Oil Prices
While a weaker currency has complicating effects on the economy (it will also boost exports, for example), on balance low oil prices have been an unmitigated disaster for Canada’s economy.
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Just How Low Will The Loonie Go?
Just How Low Will The Loonie Go?
The Canadian dollar fell to below 80 cents on Friday, battered by bad news at home and good news south of the border, leaving economists scrambling to predict just how low it could go.
The loonie ended the week at 79.3 cents U.S., sinking after a report showed Canada had its worst trade balance in nearly three years alongside news of an improving job situation south of the border that lifted the U.S. greenback.
In theory, the low loonie should help exports by making Canadian-made goods cheaper abroad. But Canada posted its largest trade deficit since 2012, of $2.5 billion in January on the back of plunging oil prices.
Meanwhile, the U.S. economy easily surpassed expectations and pumped out 295,000 jobs in February, bringing the unemployment rate to 5.5 per cent, the lowest it has been since 2008.
With little evidence that other sectors will pick up the economic slack from the sinking oil sector, along with record high household debts and a volatile labour market, economists have been racing to find the bottom.
“The Bank of Canada keeps touting the long-awaited rotation to exports and investment; I say the rotation is keeping itself very well disguised,” BMO chief economist Doug Porter wrote in a note Friday.
BMO predicts the loonie will continue to be at its cheapest rate in six years for 2015.
Scotiabank’s chief currency strategist Camilla Sutton said she expects the loonie to sink further, to as low as 75 cents.
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Loonie Plunges Through 80 Cents U.S. In Currency’s Biggest 2-Year Drop Ever
Loonie Plunges Through 80 Cents U.S. In Currency’s Biggest 2-Year Drop Ever
The Canadian dollar fell through a psychologically important barrier Wednesday, trading for the first time in five years below 80 cents U.S.
The loonie was hovering at 79.8 cents U.S. as of Wednesday afternoon, having followed oil prices downward for yet another day.
Bank of Montreal chief economist Doug Porter noted that the currency has shed 19.5 per cent of its value since January of 2013 — the biggest two-year drop in the currency’s history.
“There will be consequences,” Porter wrote, presumably referring to rising prices for consumers.
West Texas Intermediate was trading at around $44.50 per barrel, the lowest price for the benchmark oil in six years, according to the Wall Street Journal. Prices are down some 60 per cent since a recent peak last summer.
The latest oil price dive came amid news that U.S. oil stockpiles are at an all-time high, and have been growing at the fastest pace in 30 years. That’s a sign of a supply glut in the U.S.
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Canadian Dollar Plunges To 5-Year Low Of 86.69 US
Canadian Dollar Plunges To 5-Year Low Of 86.69 US.
The Canadian dollar plunged to 86 cents today in the wake of turmoil in oil and stock markets.
The loonie was trading at a 5½-year low of 86.69 cents US.
Oil prices seemed to pause in the steep descent they’ve made in the last two weeks.
West Texas Intermediate crude, the contract traded in New York, was down just 18 cents at 11.30 a.m. ET, to $60.76 US a barrel, after falling more than $2 Wednesday.
Brent crude edged higher, up 23 cents, to $64.47 US. It is down 37 per cent over the last three months.
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