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, SIOR, CCIM

Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer with NAI Canada-wide since 2013.

Ryan Brown

Ryan Brown

Partner, BCom, SIOR

Ryan is a partner with NAI Commercial Real Estate in Edmonton and is currently ranked nationally as one of NAI's top advisors. Having executed in excess of $100 Million worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and long-term practicality.

Darcie Bouteiller

Darcie Bouteiller

Associate

Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.

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