The oil price crash continues to claim victims…and many of them are in Canada.The price of oil hovered around $100 for most of last summer. Today, it’s trading for less than $45. Weak oil prices have pummeled huge oil companies. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks the performance of major U.S. oil producers, has declined 36% over the past year. The Market Vectors Oil Services ETF (OIH), which tracks U.S. oil services companies, has declined 30% since last November. Weak oil prices have even pushed entire countries to the brink. Saudi Arabia, which produces more oil than any country in the world, is on track to post its first budget deficit since 2009 this year. If oil prices stay low, the country could burn through its massive $650 million pile of foreign reserves within five years.


Oil’s collapse is also creating big problems for Canada’s economy…..


Canada is the world’s sixth largest oil producer. Oil makes up 25% of its exports. Last month, The Conference Board of Canada said it expects sales for Canada’s energy sector to fall 22% this year. It also expects the industry to record a net loss of about C$2.1 billion ($1.6 billion) in 2015. That’s a drastic change from last year, when the industry booked a C$6 billion ($4.5 billion) profit.

Major oil firms are slashing spending to cope with low prices. Last month, oil giant Royal Dutch Shell plc (RDS.A) said it would stop construction on an 80,000 barrels per day (bpd) project in western Canada. The company had already abandoned another 200,000 bpd project in northern Canada earlier this year. The Canadian Association of Petroleum Producers estimates that Canadian oil and gas companies have laid off 36,000 workers since last summer. Most of these layoffs happened in the province of Alberta.


For the past decade, Alberta was Canada’s fastest growing province…..


Its economy exploded, thanks to the booming market for Canadian tar sands. Tar sand is a gooey sand and oil mixture that melts down with heat from burning natural gas. More than half of Canada’s oil production comes from tar sands. In Alberta, they account for 75% of oil production.

Tar sand is generally more expensive to produce than conventional crude oil. Canadian tar sand projects made sense when oil hovered around $100. But many of these projects can’t make money when oil trades for $45/barrel. Last year, Scotiabank (BNS) said the average breakeven point for new Canadian oil sand projects was around $65/barrel. This is why giant oil companies are walking away from projects they’ve spent years and billions of dollars developing.

All these cancelled oil projects are making Alberta’s economy unravel…..


Alberta lost 63,500 jobs from the start of year through August. It hasn’t lost that many jobs during the first eight months of the year since the Great Recession. The decline in oil production is also draining government resources. Last month, Reuters reported that Alberta was on track to post a $4.6 billion budget deficit this year. Economists say it could be another five years before Alberta runs a budget surplus. The crisis isn’t confined to the oil patches either.

A real estate crisis is unfolding in Calgary…..


Calgary is home to 1.2 million people. It’s the largest city in Alberta and the third largest in Canada. On Tuesday, Bloomberg Business reported that Calgary’s property market is starting to crack:
Vacancy is already at a five-year high in Calgary and rents are the lowest since 2006 after thousands of office jobs were cut. In downtown Calgary, the vacancy rate jumped to 14 percent in the third quarter, the highest since 2010 and compared with 5 percent for downtown Toronto, according to CBRE Group Inc. …. That doesn’t include as much as 2 million square feet of so-called “shadow vacancy” or space leased but sitting empty, which would push vacancy to 16 percent, the most since the mid-1980s.

Demand for office space is falling because of massive layoffs in the oil industry. That’s because oil companies didn’t just lay off roughnecks. They also laid off oil traders and middle managers, which means they need a lot less office space. According to Bloomberg Business, a principal at one Calgary real estate office called the situation “a bloodbath” and said “we’re at the highest point of fear and uncertainty now.”


Casey readers know the time to buy is when there’s blood in the streets…..


But it looks like Calgary’s property crisis is just getting started. Bloomberg Business reports that the city has five new office towers in the works. These projects will add about 3.8 million square feet to Calgary’s office market over the next three years. More office space will only put more pressure on rents and occupancy rates. Real estate developers likely planned these projects because they thought Canada’s oil boom would last. It’s that same thinking that made oil companies invest billions of dollars in projects that can’t make money when oil trades for less than $100/barrel.


Doug Casey saw this coming…..


In September, Doug went to Alberta to assess the damage first-hand. E.B. Tucker, editor of The Casey Report, joined Doug on the trip. Doug and E.B. spoke with the locals. They even tried to buy a Ferrari. They shared their experience in the October issue of The Casey Report.


E.B. went on record saying Canada was in for “a major wakeup call.” He still thinks that’s the case. In fact, he thinks the situation is going to get a lot worse.
When we were in Alberta, we heard over and over again “It’ll come right back…it always does.” It’s not coming back. I expect the situation to get worse. And I see the Canadian dollar going much lower.

When that happens, E.B. thinks Canada’s central bank might do something it’s never done before:
Vacancy rates are rising in Canada’s heartland cities. Jobs in Alberta are disappearing. Unemployment is climbing. And there’s still a global oversupply in oil. None of this bodes well for Canada’s economy. Canada’s economy is in a midair stall. The locals certainly didn’t grasp this when we visited Alberta last month. That’s usually the case when things are going from bad to a lot worse. If you’re a central banker in Canada looking at the data, there’s only one decision: print.

E.B. says Canada’s central bank will launch its own quantitative easing (QE) program…..


QE is when a central bank creates money and pumps it into the financial system. It’s basically another term for money printing. Since 2008, the Fed has used QE to inject $3.5 trillion into the U.S. financial system. If the Fed’s experience with QE is any indication, money printing wouldn’t help Canada’s “real” economy much. But it would inflate asset prices. That, in turn, would only make Canada’s economy even more fragile.

One thing that's always been controversial and interesting, has been all the various proclaimed economic "truths."

In times past, we were told by "experts" that if the price of oil goes HIGH, that it's bad for the economy. Now "experts" tell us lower oil prices are what's bad for us.

This is the kind of thing that makes me rather cagey about all of the "expert" claims. And there have been plenty of them. Lowering taxes on the rich and especially on people who make all their money from playing money games (i.e. no actual production of goods or services) would result in a rush to expand real industries, and lower unemployment is another one that looks a bit thin, after having it in place for almost a decade with no positive results (except for the money gamers, of course).

But anyway: are we supposed to be upset, or happy that Canada's oil barons are feeling a pinch?

well, i'm not sure how we're "supposed" to feel, but here in Houston we are going through the same thing... lots of jobs were lost, the economy is supposedly down, and all the oil people are mad... but i myself see it as a good thing, everyone that's not in the oil business are happier, they have more money to spend on other things rather than gas, and i personally am glad to see these oil barons not making as much money... they've been screwing everyone for so long, since bush and the evil one left office, and now they needed to be knocked down... it might sting a bit at first, but in the long run, it's a good thing to spread some of that wealth they've been accumulating spread around some...

Yep,its baaaddd here in Cowtown (Calgary).
A division of my Company is a supplier to the oil & gas industry..My customers are hurting bad..
Companies who had 12 installers for making up of panels are down to 1 or maybe 2 now.. some Companies have not ordered anything in months...they've let staff go; they've cancelled their Xmas parties;..
Vacancies? YEP, lots of empty buildings - lots of 'for lease', 'for sale' signs going up and price per square foot is dropping..
I happened to have walked by the unemployment office and there were long lines of applicants..
Seems like we're back to 1982 era
We hope to weather the storm, as our Company is diversified and not just reliant on oil & gas..
and may I say, that Alberta's oil is not 'dirty oil' either.. The Companies are doing an awesome job to be environmentally friendly.. they just don't do a great job of raising awareness of what they do in that regard.

Extremes, hi or low, are bad when they aren't based on normal price discovery but manipulation.

Other than that "experts" isn't one unified group living in bunk beds on an economist think tank campus where they all think the same.

Might as well comment "in times past, we were told by 'mothers' that if we made a face too long it would stick that way. Now 'mothers' tell us we need to make a happy face and smile for the camera."


There are a lot of different tax categories and brackets.
Thank the government for having different tax rates for income and capital gains and short term and gifting and capex investments and all sorts of rules.

When people talk about "lowering taxes on the rich" they are usually talking about making it more desirable for "rich" people to invest in areas that are other than the most tax beneficial.

If you make the tax rate from a return investing short term in startups or small businesses higher than the tax rate from a return sticking your money into a long term dividend paying utility company, or a cd swap insurance bond, then they aren't going to invest short term in startups or small businesses, if they are going to get the same return before taxes.

You will never get "rich people" to not play "money games."

They are chasing return.

You will never get people to not play "money games."

People in Seattle used to (or maybe still do) drive to Oregon to purchase cars and things, in order to avoid sales tax.

When people talked about "lowering taxes on the rich" it's the equivalent to Seattle's government saying "let's lower the sales tax on automobiles in Seattle so people buy them here, rather than there."

And then other people saying "Only rich people buy cars! And they want lower taxes?!?! They're playing money games!"

And other people will say "the rich car buyers aren't paying their fair share! Let's increase the tax rate in Oregon! Then when the rich go there to buy cars we'll take all that money and pay for schools! It's for the children! Oh no! The rich car buying people stopped coming to Oregon and went across the border to Canada?! They're playing money games!"

And then people will go to Wal-Mart instead of Target to buy the exact same disposable consumer product but for a cheaper price and then complain about "rich" people playing "money games" that don't create jobs, create anything or service anything.

bump

One thing that is always important to remember when dealing with "The Economy," is that everything plays a part in it, and everything has positive and negative effects at the same time. What too often gets forgotten, or is even purposely overlooked, is that what we really do when we manipulate things, is we choose where the distortions will be and why.

My point about a basic idea of who to lower taxes on, is that too many people forget or purposely hide the fact that there's always a downside, and that there are specific things that changes in tax laws can or can't do, and what they aren't at all likely to do.

In the case of the "Supply Side" idiocy of the 1980's onward, wherein taxes are lowered on investment profits, in the expectation that with more investment,will come more business expansion...

...is that it straight up ignores the primary reason why businesses do or don't expand. This stuff isn't magic. It's mechanics and logic.

Businesses expand, because they see more customers with money. NOT because they happen to have more money in their pockets. That's why non of the modern reductions of taxes on the upper brackets has helped the overall economy at all.

If the situation had been that the middle and lower classes were all flush with cash, and couldn't find enough products and services to buy, then lowering taxes on investors might well uncap restraints and result in expansion.

But what has been happening instead, is that the taxes on the upper brackets have been paid for by reducing valuable services for the middle and lower classes, and by restricting important government functions such as physical plant maintenance (i.e. roads, bridges, health care, etc). And by holding wages down, no matter how high profits rise.

Wow.. I had no idea it was that bad up there. It is a shame as I am sure most of those who are now without a job are in their 40's.. 50's..bad situation. I hope it gets better soon.

Communities that are heavily dependent on the oil industry are always vulnerable to economic down-turns.