August 28, 2017 Weekly News

CANADIAN ECONOMIC CALENDAR

Canadian GDP growth will be the highlight of the week for Canadian economic data. Canadian productivity is expected to grow at an annualized pace of 3.6% for the 2nd quarter of 2017. 1st quarter growth was also strong at an annualized pace of 3.7% as the Canadian economy continues to show signs of a solid recovery. According to Andrew Grantham at CIBC Capital Markets, the economic growth trend will normalize in quarter 3. Initial estimates for quarter 3 growth are 1.9% on an annualized basis as higher interest rates will taper borrowing and the housing market may struggle under new housing regulations.

HARVEY'S HIT ON ENERGY

The crack spread, the difference between gasoline prices and crude oil prices, which blew open in the wake of Hurricane Harvey and mass flooding in the state of Texas, is expected to slowly narrow as refineries come back online. However, some refineries are said to take up to a month to come back online depending on the extent of damage as a result of the Category 4 storm. With over a quarter of US refining on the Texas coastline, demand for crude in the short term has become weakened due to lower refinery capacity. Meanwhile, with less plants online, gasoline supply has taken a hard hit causing gasoline futures prices to hit as high as $1.771 per gallon last week. October crude oil futures traded as low as $46.73.

Crude oil prices continue to consolidate around the $46-$48 range as declines in the Baker Hughes rig count in the past two weeks, along with positive news on crude inventory data is offset by continuous increases in US shale production. Domestic production as reported on Wednesday, increased again to 9.528 million barrels of oil per day as shale producers continue to pump oil in lousy market conditions. Many analysts see dwindling inventory as a very bullish sign, as the increased production is being sold as opposed to stored. Current crude oil days in inventory is 26.5 days, a sharp decline from as high as 34.2 days in March of this year.