With all the volatility of oil prices over the past 2 years, it’s encouraging to see some recent stability. We have written extensively about Edmonton’s commercial real estate market hinging on the price of oil and we still feel the topic will dominate the headlines for 2017.
OPEC agreed to cut production in December with the goal of raising prices. Indeed, there was a noticeable uptick immediately following the announcement, and oil has since traded fairly consistently in the low to mid $50 / barrel range (WTI:$USD).
What’s stopping prices from rising further? While the oil industry is undoubtedly a large, complex machine, we feel there are two main factors keeping a ceiling on prices. First, some countries in OPEC are infamous for non-compliance on production caps. This concern is compounded by the deal hinging on Russia and other non-OPEC countries to also cut production. The cap is currently a 6 month deal, and while there appears to be support to extend it for the balance of 2017, there could be a disruption if there is further non-compliance or signs the plan isn’t working. The other major impact is the US shale industry. Some analysts speculate that the US can simply increase production to offset whatever production cuts OPEC agrees to. In other words, if OPEC cuts 1 million barrels per day, the US has the capacity to increase production by 1 million barrels per day and nullifying the intended effects.
While it’s anyone’s guess at where the price goes in the future, the recent stability is driving an uptick in industrial areas such as Nisku, Leduc and Acheson. While the past couple of years has been difficult in those markets, we’re seeing more interest in the form of tours, offers and transactions. While many companies would still like higher oil prices, it is encouraging to see some support at the $50 / barrel level. We’re hopeful this translates into more activity in 2017.
Chad GriffithsPartner, 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 BrownPartner, 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 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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