Idle Trains, Stalled Pipelines and $70 Oil

There’s an optimism in Edmonton’s industrial market that we haven’t seen since 2014.  Not that it’s anywhere close to the flurry of activity we saw prior to the plunge of oil prices, but it’s markedly better than it’s been the past few years.  If we were to do a rough sketch of the activity we’re seeing, it would look something like this:

activity levels

There seems to be a consensus that Alberta is coming out of the recession as recent stats show growth in GDP, housing starts, retail sales and exports.  While there are numerous explanations on why the economy is improving, the most obvious is the steadily rising price of oil.  After bottoming out around $30 / barrel (WTI:$USD) in 2016, prices have increased to just under $70 / barrel at the time of writing (on a side note, we predicted $70 oil a few months ago, but have also made some wildly inaccurate predictions too!)

Below is the graph of oil prices over the past 5 years.  It’s probably not surprising that our graph tracking what we’re seeing in the industrial market could neatly overlay the price of oil.

Oil5yearApril2018

So while oil prices are rising, and activity is increasing, we’re still dealing with major threats to the economy.  The most publicized topic lately is Horgan’s opposition to Kinder Morgan’s Trans Mountain pipeline.  Kinder Morgan has given a deadline of May 31 to have this issue resolved, and Alberta has passed legislation that could theoretically restrict oil supplies to BC.  The latter option will undoubtedly have adverse short term effects on any company that ships oil to BC.  There’s also issues about the legality of it, so one could reasonably assume this could become a court matter and get dragged out indefinitely.

The next issue is the looming CP strike.  With a pipeline network in need of an expansion for a reason, oil companies have transitioned to rail shipments to get their product to market.  Notwithstanding the issues of shipping oil by significantly less efficient and safe methods than pipelines, the rail system has been a pivotal method of distribution.  CP teamsters and electrical workers are expected to go on strike tomorrow, which will undoubtedly put pressure on the economy until the situation is resolved.

So while there are issues that may impact our local and provincial (and national) economies, there are also a number of factors that will continue pushing and pulling on the price of oil.  For example, Saudi Arabia has indicated it would like to see $80 / barrel oil in the near future.  As the de facto leader of OPEC, they may try to engineer a price rally.

This potential power isn’t sitting well with President Trump, however, as he tweeted his disdain this morning:

Trump

So oil prices are rising, Trump is angry, and Alberta is having issues getting product to market.  One thing is for sure, 2018 will be an interesting year.

 

 

 

 


 

Disclaimer:

Information contained herein has been obtained from sources deemed reliable but is not warranted to be so.  Information is our own commentary and does not reflect the views and opinions of any group, company or organization and should be construed as real estate or investment advice.  View full disclaimer here.

 

 

 

 

 

Our Team

CHAD GRIFFITHS

CHAD GRIFFITHS

Partner

Chad is a partner with NAI Commercial and has finished as a top 15 producer Canada-wide for the past three years. Chad owes his success largely to his commitment to uncompromising client representation, his active involvement in the real estate and business communities and a lifelong pursuit of continuous learning.

RYAN BROWN

RYAN BROWN

Partner

Ryan is a partner with NAI Commercial Real Estate in Edmonton. He is currently ranked nationally as one of NAI’s top advisors in Canada. Having completed his Bachelor of Commerce majoring in Finance, his eye for detail and great understanding of the numbers associated with any business decision makes him an asset to his clients while providing them the highest level of service.

DARCIE BOUTEILLER

DARCIE BOUTEILLER

Associate

Darcie began her career in Commercial Real Estate after completing her studies in Business Administration. Her personable nature coupled with a results-driven attitude is a perfect match for customers. Darcie understands the importance of delivering a custom, accountable solution for her clients.

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