MNI POLICY: Canada's Low Energy Oil Patch Boosts Stimulus Case

By Greg Quinn

     OTTAWA (MNI) - Canada's energy industry is showing evidence of being a

continued weak spot that boosts the case for policy makers to step in.

     The province of Alberta -- home to many of the country's biggest oil and

gas producers -- lost 14,300 jobs in July, the biggest driver of a national

decline of 24,200. Over the last 12 months Alberta's employment gain of 0.8% is

far behind the national gain of 1.9%. Statistics Canada also reported Friday

that Alberta building permits dropped 15% in the second quarter from a year ago

-- the fifth such decline in a row.

     Canada's decline as a self-styled energy superpower led to Bank of Canada

Governor Stephen Poloz's most challenging move with two rate cuts in 2015 as oil

prices tumbled. Poloz has resisted signaling a rate cut this year because of

domestic momentum outside the energy industry. With the prospect of a U.S.-China

trade war pressuring central banks around the world to offer more stimulus, any

crack in Canada's potential for domestic growth adds to the case for the BOC to

get off the sidelines.

     While the Bank's July 10 interest-rate decision focused on global trade

risks, policy makers also said they would closely monitor developments in the

energy sector. The BOC's outlook lowered the assumption for crude prices by $5 a

barrel and said the base case is for oil investment to fall again this year

before stabilizing by 2020. 

     Oil and gas jobs are high-paying and during an earlier boom powered big

spending on pickup trucks and mansions around Calgary and Edmonton. Now Calgary

is among the weakest markets for new home construction with prices down 2.4%

percent in June from a year earlier. That's the biggest decline in the city

since December 2009, around the time of Canada's last recession. Edmonton new

home prices fell 1.2%, faster than the 0.2% national decline. 

     On the fiscal side, opposition lawmakers have lobbied Prime Minister Justin

Trudeau's Liberal Party to spend on benefits for laid off energy workers. The

rival Conservative Party is also demanding faster pipeline construction to ease

discounts on a glut of Alberta's heavy crude oil by tapping into Asian markets.

Trudeau faces re-election in October and earlier this year moved to revive the

stalled Trans Mountain pipeline, which will take years to build.

     The provincial government late last year announced the rare step of

imposing production cutbacks aimed at reducing massive discounts on its heavy

crude oil exports, regulations still in place today. Canada's last trade balance

report showed little reason for optimism-- national energy exports were little

changed in June from a year earlier.

     Another sign that future production will be weak is the 40% drop in the

number of oil wells active in the province in July-- for a total of 80 from 135

a year earlier.

     There are more signs consumers in Alberta are feeling the pinch. Retail

sales have fallen 1.5% in the province in May from a year ago, versus a 1% gain

nationwide. Sales fell 1.7% in Alberta in May, the first decline in three

months.

     The province's unemployment rate climbed to 7% in July from 6.6% in June.

That widens the gap over the national rate of 5.7%. That's a big switch for a

region that a few years ago was begging people from across the country to move

there to fill vacant positions.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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