Sales in Red Deer in the first two weeks of December dropped by almost 50% compared to the first twoweeks in November. The number of active listings also dropped, back to levels we saw last year at this time and well below the peak reached in the spring of this year.

Last year at this time oil prices were headed into the $US28 range and optimism was not very high. The outlook is much better this year, but we are now being impacted by the federal government’s tougher rules for mortgage qualifying that have reduced the average buyer’s ability to finance their home purchase. It is an effort to curb rising prices in Toronto and Vancouver, but unfortunately, their country wide tinkering is negatively affecting Albertans who can least afford it.

Other than the new Alberta Carbon Tax, there has been lots of good news lately in addition to strengthening oil prices. Two pipeline approvals, increased 2017 budgets on the part of several major oil companies, oil patch workers being called back and one of the most visible signs of all – oil company truck convoys on the highways. Natural gas prices are also up, as indicated in the ATB article below.

Natural Gas Prices Jump Up …… Quietly by ATB Financial Economics

In case you missed it, natural gas prices have climbed to levels not seen for about two and a half years. As of yesterday, the Canadian benchmark’s (AECO) spot price closed around C$3.40/MMBtu while the North American benchmark, Henry Hub settled around $3.50/MMBtu.

The reason? Supply and demand.

First, let’s start with supply. Natural gas is required by oil producers for upgrading purposes and to run oilsands operations. As these businesses start to piece things back together and pick up the pace, they have been forced to draw a bit more natural gas from inventories thereby reducing supply. But, it’s not just businesses drawing down stockpiles, it’s us, the consumers too!

With temperatures dipping around -30*C, this cold snap that has covered much of the province has caused many Albertans to crank the temperature on their thermostats. Doing so has increased the amount of natural gas required to heat our homes and run Alberta’s businesses which has also caused a drawdown on storage supplies.

Collectively, these draws on natural gas inventories have boosted demand and caused the price to rise. Of course, as supply diminishes, demand bumps up and causes the price of natural gas to increase.

Both Canadian and North American gas prices are likely to stay at higher levels, at least as long as these cooler temperatures continue to stick around. AECO’s price is expected to float around C$3.40/MMBtu for the next couple of months while Henry Hub is expected to bounce around $3.50/MMBtu.

November sales in Red Deer were average compared to last year at this time, and were down from last month, which is normal for this time of year.  The number of active listings is down to last year’s levels.  There is no doubt many listings have come off the market recently as a result of slower activity, with the intention to come back on in the spring.

Two recent developments will almost certainly impact our local economy in the coming year.  First, OPEC announced an agreement with its member states to reduce oil production by 1.2 million barrels per day starting in January.  It’s difficult to predict whether the participants will actually live up to their promises, but oil prices immediately moved above the magic $US50 mark and are predicted to move higher with some predictions as high as $US70 by the end of 2017.

Second, the federal government approved two pipelines, one to the US and the Kinder Morgan expansion to Vancouver.  When complete, the Kinder Morgan expansion allows 600,000 additional barrels of oil per day to flow to Asian markets where it will receive world prices rather than the discounted prices we get from the US.  These two announcements will undoubtedly boost consumer confidence and generate some desperately needed jobs for Albertans.