Meantime, Western Canada Select records lowest price on record

2016 is already getting off to a rough start for Western Canada Select (WCS) crude oil, Canada’s benchmark crude oil. WCS dropped US$2.05 on Monday, closing at US$16.61 per barrel, its lowest close on record, according to The Globe and Mail. WCS continued to shed value today, trading at $15.38 per barrel at 12:43 EST. The price of WCS is down 30% this year and nearly 80% from a year ago.

Price chart of Western Canadian Select, Canadian banks looking at stress tests

Decline in WCS not affecting wider Canadian economy

Despite the bleak outlook for Canada’s benchmark crude oil, Canadian bank chief executives believed that the broader Canadian economy will continue forward on track. Lower energy costs are expected to help other parts of the economy.

“The contagion back to the rest of the economy is nominal right now,” Dave McKay, Royal Bank of Canada’s CEO, said at a conference that brings together the leaders of all of Canada’s big banks, reports The Globe and Mail.

McKay expects tourism to be particularly strong, with Canadians staying closer to home due to the weaker Canadian dollar, while domestic exporters should also benefit from a weaker currency that makes their products more competitive in foreign markets.

Banks like Bank of Montreal are starting to redo their stress tests on oil, however. With U.S. crude oil benchmark slipping toward $30 per barrel, the low end of most previous stress tests, Bank of Montreal is now looking at $25 per barrel, said bank CEO Bill Downe.

Downe does not see oil prices recovering to $40 per barrel until 2018, but he believes Canada’s oil and gas sector has been making the right moves to manage its way through the down cycle thus far. Cuts to budgets and dividends will help to shore up long-term financial health.

Victor Dobig, CEO of Canadian Imperial Bank of Commerce, reiterated that only 2% of the bank’s loans are to the energy sector, and 78% are investment grade.

“Clients are being smart,” said Dobig. “They’ve been through this before.”


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