Juggling Dynamite

After a short-lived rebound in energy shares between January and February, the energy sector index (XEG) remains down 35% from its June 2014 high. Interim bounces notwithstanding, it is likely that energy shares have further to fall as investors lose patience and prices couple with the reality of falling oil. Unlike the March 2009 ‘V’-shaped rebound, this time there is little prospect of ‘monetary magic’ to reignite animal spirits. With energy cos still 21% of the Canadian stock market (S&P/TSX), the downside for the broader market looms ominous.

This chart of sector heavyweight Suncor (red) versus the price of crude (WTI in black) offers some insight on the price risk still inherent to date.

The collapse in the market for Canada’s heavy crude below $30 a barrel last week is hammering home a harsh reality for the nation’s oil-sands producers: There’s no one to save them this time.

Unlike previous market crashes that were relatively short- lived, the combination of persistent oversupplies and weakening demand are dealing a severe setback to what’s been one of the biggest growth stories in global energy markets. Oil-sands companies such as Suncor Energy Inc. already have been rethinking major developments that can require more than $10 billion in investment. Now even existing projects are barely covering costs or in a losing position…

When the price of Canadian crude fell to similar depths in 2009, U.S. monetary policy helped prevent a financial crisis from deepening and boosted demand for oil, setting the stage for a relatively swift recovery. This time around, there’s no end in sight to the oil glut, leaving companies no choice but to drastically cut costs to survive.

The rule of thumb for new projects in Canada’s oil sands is that a West Texas Intermediate crude price of about $80 a barrel is needed to earn a return. The paste-like fossil fuel from northern Alberta is selling at a discount of about $13 a barrel compared to U.S. crude, which is now well under $50. See: Oil sands tested as rout hammers home harsh reality

2015 is off to a weak start in Canada: both manufacturing and retail sales fell 1.7% in January while exports fell 2.8%–so far a much weaker loonie is not having the boosting effect that bulls had forecast.

The Bank of Canada had projected annualized growth of 1.5% in the first quarter, but with one week to go, that target is looking overly optimistic again. Q1 growth is setting up to be flat to negative. And job losses for Canada’s highly indebted consumers, are only just started. Plunging revenues are spreading from the energy patch to the other interconnected sectors.

Canadian employers are reluctant to hire, and it’s not just because of low oil prices.

Year-over-year employment growth in Canada has been below 1 per cent for 15 months in a row, the longest stretch below that mark for annual job gains, outside of recessions, in almost 40 years of record-keeping.

This slow growth reflects caution among employers who are reluctant to add staff in an uncertain economic climate, now compounded by currency and commodity price volatility. Without clarity that business conditions will improve, many employers are aiming to keep costs down by avoiding adding to permanent payrolls.

Companies “want to take advantage of better business activity by improving productivity,” said Rowan O’Grady, president of recruiting firm Hays Canada. “But there’s still a lack of confidence … to be in a position where they’re doing a lot of hiring.”

Rather than risk adding to head counts, he said, many are instead asking one person to take on two roles, hiring only on a temporary or contract basis and holding off on big decisions to expand.

Employers shed 1,000 positions last month, according to Statistics Canada, and the jobless rate rose two notches to a five-month high of 6.8 per cent as more people looked for work. Annual employment growth has hovered at about 0.6 per cent in the 15 months since December, 2013.

The last period of least 15 months of growth below 1 per cent was during the 2008-2009 recession…

See: Anemic job growth streak earns place in the record book

Skyscrapers, windows, lap tops, phone screens, car windows, the world is full of solar panels waiting to be utilized. Free, clean energy everyday; ours for the taking. Mass scale solar is world changing. The most important evolution since the wheel.

Silicon Valley startup Ubiquitous Energy is making the world’s first transparent solar cells, a technology that could greatly expand the reach of solar power. Their technology is an invisible film that can go on any surface and generate power, which could lead to cell phones and tablets that never run out of batteries — or skyscrapers that can use their massive banks of windows as solar panels. Here is a direct video link.