The impact of oil prices, from A to Y

Gear up for budget day: today, we get to take stock of the impact of oil on Alberta (what a difference a few months and an oil rout can make), as the energy province and Quebec prepare to deliver their budgets today. We also have the aftermath of a tech sector sell-off, and the early impact of yet another international crisis, as Yemen disintegrates and Saudi Arabia and its Gulf allies launch a bombing campaign. More on how that’s impacting the price of oil later.

Yesterday saw an equity sell-off from Asia to Toronto, with the TSX/S&P Composite Index down 150 points (one per cent), due to underwhelming durable goods numbers from the U.S. – which includes computers and other longer-term consumer goods. This spurred a sudden sell-off in Intel, Apple and Microsoft, which weighed out a more than 30 per cent boost for Kraft, over reports that the company will be acquired by Warren Buffett and 3G, which owns Tim Hortons. In fact, yesterday, energy was one of the only sectors that didn’t fall – as the threat to an oil transport point near Yemen pushed the price of West Texas Intermediate (the U.S. benchmark) up above $50.

Yesterday, the national competition regulator said they wouldn’t block the acquisition of Sun Media by Postmedia, adding 173 publications to their roster to form the biggest news media company in Canada. In the meantime, a former Bay Street lawyer got nicked for insider trading, as part of an insider-trading crackdown by the Ontario Securities Commission. We’re going to take a break from Greece today, but in the mean time, Bloomberg has this revealing chart video that covers GDP, debt and unemployment.

There’s very little on the schedule for the rest of the world, but it’s a busy day for Canada. Besides the Quebec and Alberta budgets, Bank of Canada governor Stephen Poloz is in the U.K. today to give a speech, and Employment Insurance numbers will be out this morning for January.

CN chief gets a budget cap. As Canadian National Railway has seen its profits surge, safety has taken a hit – and now the CEO’s bonus will, too. The railway says that it ties corporate bonuses to financial performance, but after a spike in derailments and accidents, safety is now part of the assessment as well. Last year, the company saw profits rise 14 per cent, while a Reuters study said derailments had also increased – by 73 per cent. CN said itself that the bad weather had also meant a spike in falls and injuries this winter. CEO Claude Mongeau may have seen his bonus capped, but he still made $9.3 million last year – an increase, like profits, of 14 per cent.

Schlumberger violated U.S. sanctions against Iran and Sudan. The oil company, one of the world’s largest, admitted it had used a non-U.S. based subsidiary to trade with the countries. The U.S. department of justice says the company also made efforts to hide those relationships. Schlumberger says it has since resolved the issue and stopped operating in Iran. They’re not the only one: a German bank was fined almost $1.5 billion for violating U.S. sanctions and assisting with money laundering just the other week (and, lest we forget the HSBC scandal, which saw all manner of drug lords and dictators using the company’s Swiss accounts.)

Topsy-turvy budgets for Quebec and Alberta. As both provinces prepare to present their budgets today, what is notable is how much the fortunes of one province can change. While saying that Alberta and Quebec have suddenly reversed course is a stretch (Quebec has higher debt and a bigger demographic crunch), the reverse parallels will nonetheless be interesting, as Quebec weighs the results of long-running cuts, and big-spending Alberta suddenly faces a hole in its balance sheet. The province’s deficit could be as large as $7 billion, Jim Prentice has warned. One of the impacts will be a health care levy, and possible changes to taxes, although a reintroduction of the provincial sales tax has been ruled out for now. The bigger issue is Alberta’s lack of energy savings – a large chunk of energy revenue hasn’t been tucked away into the heritage fund since the 1970s. This is a great time to revisit Maclean’s encyclopedia of the oil crash, and it starts with “A is for Alberta.”

Yemen and the price of oil. The flare-up of the crisis in Yemen, which has seen the president flee from Houthi rebels by boat, and Saudi Arabia rally its Gulf allies for a bombing campaign, has suddenly started to push oil prices up. But it’s not because the country is a massive oil producer – in fact, in 2013, it was about comparable to Denmark, producing less than 0.2 per cent of the world’s oil. So the answer comes from two other places, according to Bloomberg: the first is transport, and the second is Saudi Arabia versus Iran. Yemen has a chokepoint for global transport of oil from Saudi Arabia – about 3.8 million a day in 2013 – and without this thoroughfare, oil must take a lengthy, expensive route via South Africa. The second reason is Saudi Arabia’s feud with Iran, whom it believes is backing the rebels (which Iran denies). Of course, both are OPEC members. 

Would you like a little sadness with your ramen? In what must be the most depressive marketing tactic of all time, the Japanese noodle brand Nissin has launched a virtual dating feature for when you’re slurping alone. The website features a timer for your noodles, but most of all, it features a Japanese movie star gazing at you awkwardly as you eat – mostly in silence, except for when he says things like, “I feel so happy watching you eat those delicious noodles.” (Supposedly. He says it in Japanese.) You can try it here – but just a warning that it’s like a painfully bad date, and everyone else in this Starbucks thought I was lonely and weird.

 

Need to know:
TSX: 14,929.92 (-151.34), Wednesday
Loonie: 79.89 (-0.1), Wednesday
Oil (WTI): $51.09, Thursday (7:00 a.m.)