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As OPEC pumps out another record month, where will oil go?

April 16: Yesterday, oil climbed above $56 on hopes the rout could be ending. But this morning, OPEC’s manic March could turn the price around.


 

MORNING-PLAYBOOK-STORYCentral banks stay pat, markets rally again, and oil … gets its bounce back?

That’s the question making the rounds today, as West Texas Intermediate, the U.S. benchmark, perked up enough yesterday to top $56, the highest price so far this year.

But not so fast: OPEC’s oil report came out this morning, and it announced another massive boost in Saudi oil production, pushing the country’s output to almost 10.3 million barrels a day (an increase of nearly 660,000 a day in March alone). Oil is now at about $55.50, but has been dropping so far this morning. Yesterday’s push came from a U.S. oil report that said that the U.S. crude backlog was rising at its slowest rate so far this year, as well as an IEA report that downgraded Canadian production by 40,000 barrels a day. Is the oil price starting to stabilize? I think that’s wishful thinking. OPEC has consistently been hitting record production levels, and U.S. crude inventories, despite the decrease, are at their highest levels since the early 1980s.

The bump pushed the TSX/S&P Index up by another 60 points, to reach a seven-month high. Meanwhile, the Bank of Canada kept the benchmark rate steady, with the loonie rising to 81.30 cents. Today, expect more talk of big trends from the IMF and the World Bank, as they prepare for spring meetings to begin tomorrow, and central bankers and finance ministers gather in Washington to take stock of the global economy. The U.S. will also get a good look at its housing market today as housing and building permit data is released, while big banks including Goldman Sachs and Citigroup release their earnings. Australia is also getting a boost, after releasing job data that showed job growth was twice what was expected.

Steady, with room for surprises. The Bank of Canada’s latest monetary policy meeting yesterday brought with it few surprises – the 0.75 per cent rate remained unchanged – even as the Bank downgraded their expectations for growth. Governor Stephen Poloz now says the economy will be looking flat in the first quarter (he also switched out “atrocious” for “quite negative,” which just isn’t as fun to say), and downgraded growth for the year to 1.9 per cent, from the 2.1 per cent they predicted at the beginning of the year. But the general crystal ball remains the same: the oil crash has been “front loaded,” and should ease up by the second half of the year, when exports should be able to carry the flame. Assuming the loonie stays cheap, though – following the announcement, which gave little suggestion another rate cut was imminent – it rose above 81 cents against the greenback. Another persistent risk? The housing market. As Toronto and Vancouver’s markets continue to race far ahead the rest of the country’s (and with Calgary’s feeling the crash), Poloz highlighted the market risks that could spread to the rest of the economy. Last month, the housing market resale price was up by 9.4 per cent – driven almost entirely by just those two cities. (You can read the whole BOC report here.)

Meanwhile in Europe… the ECB’s meeting produced a similar lack of revelations, though things got slightly more interesting when a protester climbed onto the table and threw confetti at Mario Draghi. Despite claims that the quantitative easing program has been too effective, Draghi reasserted that the bond-buying spree would continue until September 2016 as planned. But Draghi says the program alone won’t do, and urged more fundamental changes. The implication here is the long-held knowledge that Europe’s aging economies are in dire need of structural updates, not just stimulus packages and BandAids. 

Another rocky day for Greece. Are you tired of the story of Greece? (The answer should be, no, never! Especially as there’s no suggestion the Greek situation will calm down any time soon.) Yesterday, S&P cut the country’s rating – further into junk status (B-), as the rating service said the country’s debt situation was “unsustainable.” Meanwhile, the diverging path of Greek vs. German bonds continued: the yield on 10-year Greek bonds was up 12.18 per cent this morning, over an FT report that the IMF refused requests by Athens to delay repayment dates on debt. The country owes the IMF nine billion euros in repayments due this year alone. At the same time, German bond yields fell still further, falling below 0.1 per cent this morning and threatening to move into official negative territory (with inflation, the yield is already negative.) If you’re not used to following bond yields, this just means that there is less and less demand for Greek government debt, on fears the government will default. To compensate for this risk, this same debt keeps getting cheaper to buy, and providing higher returns, in order to attract investors. In the mean time, German debt is seen as the safest in the eurozone – so safe people are willing to (theoretically, at least) take a cut to their initial investment just to hold German debt, a major reversal of the basic assumption that lending money means gaining interest. The outspoken German finance minister also had strong words for Greece, saying a debt restructuring will not be happening, nor will German reparations from the Second World War. “It’s entirely down to Greece,” he told Bloomberg yesterday. Lots of rumours are flying at the moment, all attributed to unnamed sources, with several newspapers saying Greek officials are making contingency plans for a coming default, and a German paper reporting Germany is making contingency plans, as well.

4. How much does gun violence cost? In this riveting breakdown, Mother Jones attempts to break down how much money results from the typhoon of court costs, hospital bills, lost income, retrofitting and jail expenses in the U.S., most of it paid with public money, each time a bullet makes human contact. What they find out is even more revealing: unlike car accidents or other established public health issues, there are few established numbers about the public cost of guns. Working with a researcher, they estimated the cost to be more than $229 billion a year – $88 billion more than last year’s national education budget in the United States. (If you’re looking for the short version, here are 16 charts that show the results of their research.)

Need to know:
TSX: 15,450.87 (+61.69), Wednesday
Loonie: 81.30 (+1.24), Wednesday
Oil (WTI): $55.52, Thursday (7 a.m.)


 

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