January 12, 2015

The Scenario Is About To Change

A report from CBS Money Watch. “Further proof that there’s no such thing as a free lunch, at least in the globalized oil and gas market — as big and small oil producers, as well as some related industries, feel the financial pinch that comes from lower crude oil prices. In Colorado, which has experienced higher oil production due to growth in hydraulic fracturing, or fracking, industry officials are sounding alarms. ‘This is a $30 billion industry in Colorado that employs 100,000 people both directly and indirectly,’ Stan Dempsey, president of the Colorado Petroleum Association, told CBS station KCNC last month. ‘If there’s a slowdown in drilling that will certainly have an impact on Colorado’s economy.’”

“And across the oil industry, managers and workers are bracing for what some see as inevitable job cuts. ‘The industry is going through Darwinian adjustment,’ Bill Herbert, an analyst at the investment banking firm Simmons & Co., told the Houston Chronicle. ‘The pressures of the marketplace will dictate that these companies adjust their businesses accordingly,. The easiest way to do that, frankly, is to reduce your head count.’”

The Midland Reporter Telegram in Texas. “Midland and Odessa are closing the books on another year of significant economic expansion. ‘If one knew nothing about oil prices or what drives the Midland-Odessa economy, if one looked only at the consumer spending numbers, the construction numbers, the employment numbers, those numbers would be spectacular. One would think, ‘This is an impressive economy and those residents are fortunate to live in such an economy,’ and they would be right,’ said Karr Ingham, the Amarillo economist who prepares the index for Security Bank and the Midland Development Corp. That outside observer might also be unaware that ‘the scenario is about to change,’ he said.”

“Realtors sold 256 homes in November, up 24.3 percent from 206 last November and sold 3,040 homes through November 2014, up 7.7 percent from 2,823 in the same time frame of the previous year. The average sales price soared 18.9 percent to $273,987 from $230,345 in November 2013. The price averaged $252,081 for the first 11 months of the year, up 11.3 percent from $225,547 in the first 11 months of 2013. Ingham said the overall economy was ’still padding its resume and adding to the numbers from which it will decline.’”

From Fox 25 in Oklahoma. “With our State’s oil industry concerned about low gas prices, confidence in the housing market could be shifting. Some economists worry that home prices could start to drop in Oklahoma City by the end of 2015. ‘My guess is that this is going to be a sustained decrease in the price of oil,’ said Oklahoma City University Professor of Economics Jonathan Willner. Willner says it all depends on how many layoffs oil companies have to make. The more people who are out of a job in the Metro, the worse our economy will become.”

“‘When you lose your job, you can’t make your mortgage payments. Therefore the houses go on the market, but because nobody’s got a job, there’s nobody to buy them. Prices are going to go down,’ said Willner.”

The Globe & Mail in Canada. “Royal Dutch Shell PLC is cutting hundreds of jobs at a massive Alberta oil sands project, stoking fears that more large-scale layoffs are in store as companies slash spending to cope with collapsing oil prices. Shell’s move comes as Alberta girds for a multibillion-dollar drop in provincial energy revenue. Ken Smith, president of Unifor Local 707A, representing workers at Suncor Energy Inc.’s mine and other employees in Fort McMurray, said he understood 200 people would be laid off at Shell. Mr. Smith said he has not heard of impending layoffs at Suncor, but Shell’s cuts have stoked fears that it could happen elsewhere.”

“‘A lot of the members are calling up and becoming concerned – are we going to be in layoffs?’ Mr. Smith said. ‘It’s been a long time since we’ve seen layoffs at the major plants, like Shell.’”

The Leader Post in Canada. “Home sales in the Regina area last year were on par with sales in 2013, despite a 20-year high in homes listed for sale and a 3.5 per cent decline in prices during the past year, according to the Association of Regina Realtors. Gord Archibald, CEO of the association, said demand for housing remains strong, but listings are at 20-year highs, making Regina a ‘buyers’ market’ for the first time in many years. ‘The market has more tilted toward buyers over the last year and a half,’ Archibald said. ‘It was a sellers’ market for quite a number of years.’”

“At the end of the year, there were 941 homes listed for sale on the MLS system in the city, up 33 per cent from 705 at the end of 2013, up 90 per cent from 494 at the end of 2012 and 151 per cent from 375 in 2011. The Home Price Index reported a composite residential price of $294,900, down 3.5 per cent from last year’s levels of $305,600 and the lowest level since 2012. The decline in price is a function of supply, not demand, Archibald said.”

The Los Angeles Times on Australia. “With China’s slowing economic growth, one of the biggest mining booms in Australian history is over, leaving behind a trail of jobless workers and struggling local businesses in places such as Karratha, which thrived in recent years but is now at risk of becoming a ghost town. It’s a problem around the world, from Brazil to Indonesia to South Africa. Australia, in particular, is feeling the pain. Australia is the world’s largest producer of iron ore. Most of it goes to China. But analysts are predicting a softer demand for iron in the years ahead as China tries to cool its housing and industrial production.”

“A similar if less dramatic scenario is playing out in Australia’s huge coal region in the east, where the boom is also over. Without a larger, stable population and better infrastructure, Karratha could wither and turn into one of dozens of ghost towns that now dot Western Australia, says researcher Jemma Green of Curtin University in Perth. ‘I love it,’ Belinda Meyer says of the Pilbara’s frontier life: camping, fishing, four-wheel driving through the red desert. But the 35-year-old, who moved here from Perth eight years ago with her partner, a miner, also hates it.”

“She complains about the summer heat, routinely over 110 degrees. There’s no bowling alley or movie theater, she says. Housing prices have come down some in the last year, but Meyer and her partner still pay $1,300 a week to rent a four-bedroom house, plus $900 a month for air conditioning in the summer. ‘You can’t afford to go out,’ she says, sitting with her two kids in a McDonald’s, where a plain cheeseburger costs more than triple the price in the United States. ‘A beer in the pub costs you a fortune.’”

Bits Bucket for January 12, 2015

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