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Anthony Okolie recaps the biggest news of the day including the latest COVID-19 developments, followed by a conversation with Michael O’Brien, portfolio manager, TD Asset Management, about what a potential deal between OPEC+ members on curbing production could mean for the oil market.
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[MUSIC PLAYING]
- Hello and welcome to Money Talks COVID-19 Daily Bulletin for Friday, April 3. My name is Anthony Okolie. In a few minutes, we'll be speaking with Michael O'Brien, Managing Director and Portfolio Manager at TD Asset Management about the latest development in the oil markets. But first, a quick graph of today's market news.
US companies shed a massive 701,000 jobs in March. And the unemployment rate jumped to 4.4% from 3.5% in February. It was the largest one month increase since January 1995. Keep in mind the jobs data doesn't yet fully reflect the 10 million Americans that filed for unemployment insurance in the last two weeks of March.
Oil prices jumped for a second day in a row, up more than 10% today on hopes that an agreement on production cuts will soon be reached. OPEC and its allies announced they will meet Monday after Russia said they are open to production cuts to reduce the oil glut and lift depressed prices. The number of coronavirus cases globally sits at more than 1 million. In Canada, the number of cases climbed above 11,000 and 138 deaths. Meanwhile, Ottawa has signed a distribution deal with Amazon Canada to distribute supplies across the country.
And as coronavirus cases continue to rise in the US, President Trump ordered medical supply from 3M to stop selling US-made N95 respirators to Canada and Latin American markets. Trump also invoked the Defense Production Act in order to speed up the distribution of masks to US states in need.
Finally, according to Google Trends, good news searches is at an all time high. And as the world battles a coronavirus pandemic and lockdowns are extended, we can all do with some good news. And that's a wrap of today's market news.
As promised, ask Money Talk with Michael O'Brien on the oil sector. Michael, yesterday oil prices had a great day. Today, they're up again. We now know that OPEC is calling an emergency meeting on Monday. Does it look like we could have a deal and do we have any details?
- So yes, things are looking a lot more encouraging at the moment than they have been in quite some time. The words leaking out of the backroom appear to be that OPEC+ is going to try to come to an agreement where they'll try to share the burden of the production cuts not just across the core OPEC members, not just across the Russians and some of the others in the OPEC+ group, but also, I think they want to bring in some of the non-OPEC+ countries as well to share this burden like Canadian, and American, and Brazilian producers as well.
- Of course, until we get a deal, it's still just rumor. But what will it take to get a deal and what kind of concessions need to be made in order to get that deal?
- Well, I think everybody is going to want to-- everybody's going to want to get something and everybody's going to need to give something. So clearly, the Saudis drew a line in the sand here, and they're tired of carrying the burden of production cutbacks themselves. So clearly, they want better-- you know, better participation among the other cartel members and the Russians in particular. For the Russian's part, clearly, there is an element where they were tired of restraining their own industry production only to see American shale producers increasing production. So they're clearly going to want to see some of that burden extended potentially to the US and Canadian production side of things.
And there's also a geopolitical element as well, where, I think, you know, the Russians at the highest levels, including Putin, were quite irked by the American use of sanctions against a number of Russian companies including Rosneft, which is their flagship oil producer. So, you know, there might have to be some give and take there as well to reach a deal.
- And if we do get a deal, you know, history has shown that someone always cheats, and the whole thing falls apart. Do you think there's a risk of that happening again at this time?
- Well, that's not my biggest concern at the moment, Anthony. I think, you know, we're in the middle of a near-death experience for all the large industry stakeholders, whether it's the sovereign countries themselves, the regimes, or the major oil producers. I think everybody realized just how dire the situation is. So if there was ever a time to expect, you know, the different parties to honor their agreements, I think this would be the time.
- And if there is a deal, how big a production are we talking about? And will it be large enough to sort of offset the demand destruction that we've seen caused by COVID-19?
- Well, the numbers coming-- or, you know, the numbers that are being thrown around in the media are that we could expect something in the order of 10 million barrels a day of production cutbacks, which is a significant number. This is in a global oil market of 100 million barrels a day. So, you know, this 10 million barrels per day would be a very real and very important first step.
The problem right now is with the coronavirus basically shutting down the global economy, you know, there's been an enormous amount of demand destruction on the other side of this. So, you know, depending on which number you look at, the rest of it's anywhere from 10 million to 20 million to as high as 30 million barrels a day of oil demand that's been pushed offline here.
So this would be a necessary first step to reining in the damage, but it's certainly not the whole picture. So the way I would frame it up is the key differentiator between oil in the mid teens and oil at $30 is in OPEC+'s control. The difference between oil at oil $30 and oil at $50, where the better producers can earn a reasonable return, is very much about the global economy getting rebooted, which in turn is directly related to getting the coronavirus under wraps.
- And I want to talk a little bit about oil prices, because, you know, even if we do get a bounce, oil is sold in the mid 20s. Western Canadian Select is trading above $10 a barrel-- so well below break even. Do you expect more volatility in oil prices?
- Absolutely. This is going to be a very rocky process. You know, first of all, there is no guarantee that we're going to get to a deal. A lot of the preconditions are in place, and it's good that all the different parties are in active conversation, but there's no guarantee that this gets to the finish line.
And then beyond that, I mean, even more pressing is just this issue of how long is the global economy is going to be shut down? If you can believe it, at this point in time, half the world's population is under stay at home orders-- 4 billion people. So until we have better visibility on how long this state of affairs is going to persist and just how long and how deep the damage is going to be on the economic side, it's really hard to get our heads around the proper price for oil in that type of context.
- And just in a few seconds, we have-- clearly, companies in the sector have been beaten down, to say the least. What's their investment strategy for the sector?
- Well I don't think this is time to be a hero, Anthony. I think what we really want to focus on is, given that we don't know how long this is going to last, given how little we know about how deep the valley is going to be here, I think what we really want to focus on are those best of breed companies that we have the highest degree of confidence that they're going to survive this very difficult period, and be left to resume their operations relatively unscathed, when the situation gets a little bit brighter.
So avoid the ones that could potentially be the casualties-- and there will definitely be casualties going through this period. Focus on best of breed.
- Michael, thank you very much for your insights.
- You're welcome, Anthony.
- And thank you for joining us. My name is Anthony Okolie. Please join us again soon. Stay safe.
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- Hello and welcome to Money Talks COVID-19 Daily Bulletin for Friday, April 3. My name is Anthony Okolie. In a few minutes, we'll be speaking with Michael O'Brien, Managing Director and Portfolio Manager at TD Asset Management about the latest development in the oil markets. But first, a quick graph of today's market news.
US companies shed a massive 701,000 jobs in March. And the unemployment rate jumped to 4.4% from 3.5% in February. It was the largest one month increase since January 1995. Keep in mind the jobs data doesn't yet fully reflect the 10 million Americans that filed for unemployment insurance in the last two weeks of March.
Oil prices jumped for a second day in a row, up more than 10% today on hopes that an agreement on production cuts will soon be reached. OPEC and its allies announced they will meet Monday after Russia said they are open to production cuts to reduce the oil glut and lift depressed prices. The number of coronavirus cases globally sits at more than 1 million. In Canada, the number of cases climbed above 11,000 and 138 deaths. Meanwhile, Ottawa has signed a distribution deal with Amazon Canada to distribute supplies across the country.
And as coronavirus cases continue to rise in the US, President Trump ordered medical supply from 3M to stop selling US-made N95 respirators to Canada and Latin American markets. Trump also invoked the Defense Production Act in order to speed up the distribution of masks to US states in need.
Finally, according to Google Trends, good news searches is at an all time high. And as the world battles a coronavirus pandemic and lockdowns are extended, we can all do with some good news. And that's a wrap of today's market news.
As promised, ask Money Talk with Michael O'Brien on the oil sector. Michael, yesterday oil prices had a great day. Today, they're up again. We now know that OPEC is calling an emergency meeting on Monday. Does it look like we could have a deal and do we have any details?
- So yes, things are looking a lot more encouraging at the moment than they have been in quite some time. The words leaking out of the backroom appear to be that OPEC+ is going to try to come to an agreement where they'll try to share the burden of the production cuts not just across the core OPEC members, not just across the Russians and some of the others in the OPEC+ group, but also, I think they want to bring in some of the non-OPEC+ countries as well to share this burden like Canadian, and American, and Brazilian producers as well.
- Of course, until we get a deal, it's still just rumor. But what will it take to get a deal and what kind of concessions need to be made in order to get that deal?
- Well, I think everybody is going to want to-- everybody's going to want to get something and everybody's going to need to give something. So clearly, the Saudis drew a line in the sand here, and they're tired of carrying the burden of production cutbacks themselves. So clearly, they want better-- you know, better participation among the other cartel members and the Russians in particular. For the Russian's part, clearly, there is an element where they were tired of restraining their own industry production only to see American shale producers increasing production. So they're clearly going to want to see some of that burden extended potentially to the US and Canadian production side of things.
And there's also a geopolitical element as well, where, I think, you know, the Russians at the highest levels, including Putin, were quite irked by the American use of sanctions against a number of Russian companies including Rosneft, which is their flagship oil producer. So, you know, there might have to be some give and take there as well to reach a deal.
- And if we do get a deal, you know, history has shown that someone always cheats, and the whole thing falls apart. Do you think there's a risk of that happening again at this time?
- Well, that's not my biggest concern at the moment, Anthony. I think, you know, we're in the middle of a near-death experience for all the large industry stakeholders, whether it's the sovereign countries themselves, the regimes, or the major oil producers. I think everybody realized just how dire the situation is. So if there was ever a time to expect, you know, the different parties to honor their agreements, I think this would be the time.
- And if there is a deal, how big a production are we talking about? And will it be large enough to sort of offset the demand destruction that we've seen caused by COVID-19?
- Well, the numbers coming-- or, you know, the numbers that are being thrown around in the media are that we could expect something in the order of 10 million barrels a day of production cutbacks, which is a significant number. This is in a global oil market of 100 million barrels a day. So, you know, this 10 million barrels per day would be a very real and very important first step.
The problem right now is with the coronavirus basically shutting down the global economy, you know, there's been an enormous amount of demand destruction on the other side of this. So, you know, depending on which number you look at, the rest of it's anywhere from 10 million to 20 million to as high as 30 million barrels a day of oil demand that's been pushed offline here.
So this would be a necessary first step to reining in the damage, but it's certainly not the whole picture. So the way I would frame it up is the key differentiator between oil in the mid teens and oil at $30 is in OPEC+'s control. The difference between oil at oil $30 and oil at $50, where the better producers can earn a reasonable return, is very much about the global economy getting rebooted, which in turn is directly related to getting the coronavirus under wraps.
- And I want to talk a little bit about oil prices, because, you know, even if we do get a bounce, oil is sold in the mid 20s. Western Canadian Select is trading above $10 a barrel-- so well below break even. Do you expect more volatility in oil prices?
- Absolutely. This is going to be a very rocky process. You know, first of all, there is no guarantee that we're going to get to a deal. A lot of the preconditions are in place, and it's good that all the different parties are in active conversation, but there's no guarantee that this gets to the finish line.
And then beyond that, I mean, even more pressing is just this issue of how long is the global economy is going to be shut down? If you can believe it, at this point in time, half the world's population is under stay at home orders-- 4 billion people. So until we have better visibility on how long this state of affairs is going to persist and just how long and how deep the damage is going to be on the economic side, it's really hard to get our heads around the proper price for oil in that type of context.
- And just in a few seconds, we have-- clearly, companies in the sector have been beaten down, to say the least. What's their investment strategy for the sector?
- Well I don't think this is time to be a hero, Anthony. I think what we really want to focus on is, given that we don't know how long this is going to last, given how little we know about how deep the valley is going to be here, I think what we really want to focus on are those best of breed companies that we have the highest degree of confidence that they're going to survive this very difficult period, and be left to resume their operations relatively unscathed, when the situation gets a little bit brighter.
So avoid the ones that could potentially be the casualties-- and there will definitely be casualties going through this period. Focus on best of breed.
- Michael, thank you very much for your insights.
- You're welcome, Anthony.
- And thank you for joining us. My name is Anthony Okolie. Please join us again soon. Stay safe.
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