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Overflowing production continues to dampen oil prices as Alberta premier mulls solutions

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Oil market analyst Kevin Birn likens Western Canada’s crude supply to a bathtub with a drain that’s too small to keep up with the increasing volume pouring out of the tap.

As barrels of surplus oil lap the edge of the tub, desperate producers are forced to sell at rock-bottom prices to avoid a big mess.

Meanwhile, no one seems to agree on how to either turn down the tap or install a bigger drain.

“You can think of it as a bathtub that’s full. And as long as the bathtub is full, the pressure on the (price) differentials is going to be bad,” said Birn, the vice-president of North American crude oil markets for IHS Markit.

“So you’ve got to drain it. And building rail, it will help. You’re seeing announcements around production curtailments and that’s an attempt to accelerate the meeting between supply and demand to drain the basin.”

Alberta Premier Rachel Notley announced this week the province would buy as many as 80 locomotives and 7,000 rail tankers to move the province’s excess oil to markets, with the first shipments expected in late 2019.

She was scheduled to make a key announcement Sunday evening on oil production, writing in an op-ed sent to Postmedia that she is considering many options including production cuts.

Jason Kenney, leader of Alberta’s opposition United Conservative Party, has said it would provide faster relief if all companies in Alberta were forced to temporarily halt 10 per cent of their production.

4.6 million bpd

Canada had total production of about 4.6 million barrels per day of oil in September, with 4.3 million bpd produced in the West, according to the National Energy Board.

That month, the country exported 3.47 million bpd of oil, with almost all of it going to the United States. Crude-by-rail exports rose to a record of almost 270,000 bpd.

After hitting highs of more than US$52 per barrel in October, the discount on Western Canadian Select bitumen-blend crude versus New York-traded West Texas Intermediate settled at about US$29 per barrel on Friday, according to Net Energy, about double the discount it typically fetches due to lower quality and transportation costs.

Upgraded synthetic crude from oilsands mines was selling at an US$18.50 discount to WTI (it typically trades near par) and Edmonton light oil was receiving about a US$23 discount, although it is of similar quality to WTI.

In an update report on Nov. 21, Scotiabank analysts said the wider-than-usual discounts will cost the Western Canadian oil industry $15 billion to $39 billion of earnings in 2019 compared with a scenario where pipeline capacity is adequate to take away export production.

It added the Alberta government could miss out on $1.5 billion to $4.1 billion (roughly $350 to $950 per Albertan) in royalty revenue in 2019.

$13-billion economic impact

The Canadian Association of Petroleum Producers officially estimates the cumulative economic impact of discounts nationally was at least $13 billion from the start of 2016 to the end of October this year.

The oil industry’s problems are mainly due to the failure to build export pipelines to match increases in oil production, said Birn.

The 525,000-bpd Northern Gateway pipeline was approved in 2014 by the federal Conservative government and then rejected by the Liberal government in 2016. The 1.1-million bpd Energy East pipeline was cancelled by TransCanada Corp. due to “changed circumstances” in 2017.

That leaves the Line 3 replacement pipeline as the most likely to come into service next, adding more than 370,000 bpd of export capacity when it starts up in late 2019, after both the Trans Mountain expansion pipeline project and the Keystone XL pipeline were recently ordered halted by courts in Canada and the U.S.

A hint of the trouble ahead came late last year when the Keystone pipeline was shut down for 10 days due to a leak in South Dakota and the heavy oil discount doubled to as much as US$29 per barrel, Birn said.

The discount fell during the summer when oilsands production declined due to planned and unplanned project shutdowns in northern Alberta but rose again in the fall as refineries in the United States that use western Canadian heavy oil had their own maintenance shutdowns.

Meanwhile, production continued to increase, driven by projects like Suncor Energy Inc.’s 194,000-bpd Fort Hills oilsands mine which began ramping up in late 2017.

Birn said it’s tough to say where prices will go from here. Winter is the most active season for drilling in Canada and production normally rises but early indications are that the industry won’t spend as much as usual this year.

Voluntarily production cuts, increases in crude-by-rail exports and a plan by the 80,000-bpd Sturgeon Refinery to begin processing bitumen will likely help moderate discounts in the months ahead, he said.

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7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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10 Tips For First-Time Home Buyers

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Buying a home for the first time is exciting and a commitment to the future. It’s often challenging, too, and the process requires a lot of steps, many of which can be tricky to navigate as a first-time home buyer.

What are some things you should keep in mind as a first-time home buyer?

First-Time Home Buyer Tips

Here are 10 tips to keep in mind as you begin your journey toward homeownership.

1. Have Your Finances in Order

It’s wise to begin saving as early as possible once you’ve made the decision to purchase a house. You’ll need to consider the down payment, closing costs (which often range from 2% to 5% of the down payment), as well as move-in expenses.

You also need to understand the other costs of homeownership, such as mortgage insurance. property taxes, utilities, homeowner’s insurance, and more.

2. How Much Can You Afford?

Knowing how much you can realistically afford in a home is another important financial consideration. Look for the home of your dreams that fits your budget.

One way to avoid future financial stress is to set a price range for your home that fits your budget, and then staying within that range. Going through the preapproval process will help you understand what price range is realistic for your budget.

3. Make Sure Your Credit is Good

Another thing to keep in mind as a first-time home buyer is your credit score because it determines whether you qualify for a mortgage and affects the interest rate that lenders offer. 

You can check your credit score from the three credit bureaus – Experian, Equifax, and TransUnion.

This is another good reason for getting preapproved before you start your search. Learn more about the preapproval process and your credit score.

4. Choose The Right Real Estate Agent

A good real estate agent guides you through the process every step of the way. He or she will help you find a home that fits your needs, help you through the financial processes, and help ease any first-time buyer anxiety you may have.

Interview several agents and request references.

5. Research Mortgage Options

A variety of mortgages are available, including conventional mortgages – which are guaranteed by the government – FHA loans, USDA loans, and VA loans (for veterans).

You’ll also have options regarding the mortgage term. A 30-year fixed-rate mortgage is popular among many homebuyers and has an interest rate that doesn’t change over the course of the loan. A 15-year loan usually has a lower interest rate but monthly payments are larger.

6. Talk to Multiple Lenders

It’s worth your time to talk to several lenders and banks before you accept a mortgage offer. The more you shop around, the better deal you’re liable to get – and it may save you thousands of dollars.

7. Get Preapproved First

Getting a mortgage preapproval (in the form of a letter) before you begin hunting for homes is something else to put on your checklist. A lender’s preapproval letter states exactly how much loan money you can get.

Learn more about the preapproval process and how preapproval provides you with a significant competitive advantage in our article How Preapproval Gives You Home Buying Power.

8. Pick the Right House and Neighborhood

Make sure to weigh the pros and cons of the different types of homes based on your budget, lifestyle, etc. Would a condominium or townhome fit your needs better than a house? What type of neighborhood appeals to you?

9. List Your Needs and Must-Haves

The home you purchase should have as many of the features you prefer as possible. List your needs in order of priority; some things may be non-negotiable to you personally.

10. Hire an Inspector

Hiring an inspector is another crucial step in the home buying process. An inspector will tell you about existing or potential problems with the home, and also what’s in good order. You can learn more about home inspections and how to find a home inspector through the American Society of Home Inspectors website.

Buying a home for the first time is a challenge, but it’s one you can handle with the right planning and preparation.

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