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The good, bad and ugly scenarios for oil prices amid Iraq turmoil

These are stories Report on Business is following Friday, June 20, 2014.

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Three scenarios
Capital Economics today looks at the good, the bad and the ugly scenarios for oil prices amid the mounting turmoil in Iraq.

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"Thus far, the escalating crisis in Iraq has only had a limited impact on the global oil market," said Julian Jessop, the group's chief of commodities research

"This muted response makes sense as most of the fighting is contained to the north of the country well away from the main oil facilities in the south, while those in the autonomous Kurdish region have been largely unaffected," he added in his report.

"What's more, offers of U.S. military support appear to have bolstered the government's position."

Mr. Jessop projects a "benign" outcome, but nonetheless laid out these three scenarios:

The good: The crisis eases and Brent crude slips below $100 (U.S.) a barrel over the next six months to a year.

The bad: Ongoing uncertainly boosts oil to about $120, a price that has, in the past, sparked an economic slowdown.

The ugly: "The bulk of Iraqi supply is lost" and Brent soars to above $140.

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Mr. Jessop gave his good scenario a likelihood of 70 per cent, the bad 20 per cent, and the ugly 10 per cent.

"Applying these probabilities as weights to our price assumptions for each scenario suggests a 'fair price' today of around $108, some $7 below the current level of $115," he said.

"What's more, we would not expect a surge to $140 to be sustained for long, given the negative impact that this would have on the global economy and on the demand for oil."

Inflation speeds up
Annual inflation accelerated in Canada last month on the back of a spike at the gas pump, topping the Bank of Canada's target.

Today's reading of 2.3 per cent by Statistics Canada raised questions about the central bank's outlook and the sent the Canadian dollar higher, closing in on the 93-cent (U.S.) level.

On a month-over-month basis, consumer prices rose 0.5 per cent in May, the federal agency said.

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Energy prices surged 8.4 per cent from a year earlier as the cost of gasoline climbed 6.3 per cent, natural gas 21.3 per cent and electricity 7 per cent.

Still, the increases were broad-based, with a "hot" jump of 0.8 per cent for alcohol and tobacco, noted National Bank of Canada.

That 2.3-per-cent measure, up from 2 per cent in April and the fastest pace in more than two years, was faster than economists had expected.

Even so-called core prices, which strip out volatile items and help guide the Bank of Canada, rose 0.5 per cent in May from April, bringing the annual pace for that measure to jump to 1.7 per cent.

This, of course, will raise eyebrows because the Bank of Canada has a "neutral" stance, meaning there's no signal of where interest rates will head, or when. Indeed, Governor Stephen Poloz has left the door open to a rate cut, which has helped keep a lid on the Canadian currency.

The core rate, for example, is above the central bank's latest forecast, and Mr. Poloz says he believes faster inflation is temporary only.

The Bank of Canada's target for annual inflation is 2 per cent.

"Core inflation is now running a full half-point above the bank's estimate for the quarter, although we still believe any move in policy is a year off," said Peter Buchanan of CIBC World Markets.

This came as a separate reading by the agency showed Canadian shoppers out in force in April, as retail sales climbed 1.1 per cent, driven by cars and car parts.

Still, the gains across Canada were exceptionally broad-based, with sales up in 10 of 11 sectors measured, or 98 per cent.

"The advance in retail volumes is welcome news, and suggest Canadian consumers are bouncing back after a tepid first quarter," said senior economist Krishen Rangasamy of National Bank.

"The overall picture for April is good, with a trifecta of volume gains in retailing, wholesaling and manufacturing, enough in our view to prop up GDP by around 0.2 per cent in the month."

Analysts upbeat
Analysts are looking at BlackBerry Ltd. in a new light this morning in the wake of its "much improved" quarterly results and stock surge.

They still want more proof of a turnaround, though.

"While F1Q15 was a much improved quarter, the ongoing services decline and BBRY's ability to eventually offset with MDM revenues (non-BB devices) longer terms keep us on the sidelines for now," said Steven Li of Raymond James as he boosted his target price on BlackBerry shares to $10 (U.S.) from $9.50 in a research note titled "Better but needs proof points."

As The Globe and Mail's Omar El Akkad and Jeff Gray report, BlackBerry stock shot up yesterday after the smartphone maker posted a small first-quarter profit amid signs that chief executive officer John Chen's strategy is showing initial signs of working.

BlackBerry posted a first-quarter profit of $23-million, or 4 cents a share. Its adjusted loss was $60-million or 11 cents a share, better than analysts had expected.

At its annual meeting, Mr. Chen also unveiled some new devices.

"While we remain impressed with BlackBerry's … cost reduction execution, we believe management's long-term plans are still in early stages of execution with limited near-term sales visibility," said analyst T. Michael Walkley of Canaccord Genuity, who held his target price at $8.

"We anticipate BlackBerry will continue to post operating losses through fiscal 2015, but we anticipate gradually improving trends following the BES12 launch in November and believe BlackBerry could achieve break-even results in [the second half of fiscal] 2016," he added, referring to BlackBerry Enterprise Service 12.

BlackBerry shares were up 1 per cent in premarket action this morning with less than 30 minutes to go before the Nasdaq open.

Why everyone is talking about Yo. (Actually, I'm not sure why)
My daughter's name is Molly, but we often call her Mo. So I'm going to download a popular new app just so I can "Yo" Mo.

There's not much to this new app. All you can do with it, as The Globe and Mail's Shane Dingman reports, is send folks a message that says "Yo" with a single tap on your iPhone or Android device.

Which makes this all the more stunning: Its creator, Or Arbel, raised $1.2-million.

The Financial Times says the app "is mobile messaging taken to its logical – if ridiculous – conclusion."

And yet, 50,000 users have sent 4 million messages that say "Yo."

Its genesis is actually interesting. According to the FT, Mr. Arbel, who's now chief executive officer of Yo, was asked by a Moshe Hogeg, the man behind Mobli, to "make an app with one big button that could call his assistant without having to pick up the phone or compose a text message."

Sort of like a bell to ring the butler, but for the digital age.

"We have decided that this is an idea with great potential," Mr. Arbel told the newspaper.

"It's not just an app that says Yo," he added. "It's a whole new means of communication."

Oh, for the days of pet rocks and canned air. And hula hoops, which you could actually do something with.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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