‘High cost of low oil’ session highlights Hotel Investment Conference

Himalaya Jain, ScotiaMcLeod

Himalaya Jain, ScotiaMcLeod

TORONTO — A timely presentation discussing the potential effects of low oil prices on the Canadian hotel industry will highlight the Canadian Hotel Investment Conference, being held May 4-5 at the Hilton Toronto Hotel.

Presenting the session — scheduled for the morning of May 5 — will be Himalaya Jain, director and portfolio manager, portfolio advisory group, ScotiaMcLeod.

According to Jain, the Organization of Petroleum Exporting Countries (OPEC), and in particular, Saudi Arabia, deliberately pushed down the price of oil — by announcing in 2014 that in the near-term, it would accept lower prices for the commodity — because North America’s recently increased oil production, driven by high prices (and improved technology), threatened OPEC’s dominance. At the time of writing, the price of oil sat at about $51 USD per barrel (down from an average price, during the past five years, of around $90.50 USD per barrel).

OPEC’s announcement “sent the market into a tailspin,” said Jain, and appears to have achieved its desired effect, with low oil prices causing North American companies to suspend oil-patch projects worth “tens of billions of dollars.”

In Canada, this is significantly affecting Alberta and Saskatchewan’s resource-based economies. That, in turn, will affect hotels in the two Western provinces, where RevPAR growth projections are expected to be revised downward, said Jain.

But the lower Canadian dollar (the intended result of the Bank of Canada’s January interest rate reduction) will boost the fortunes of Ontario and Quebec, where hotels could see higher RevPAR.

Hotel operators that have national portfolios in Canada will be “net beneficiaries” of low oil prices, while companies that have Alberta-only portfolios “will face headwinds,” said Jain.

The overall impact of the lower Canadian dollar will more than offset the slowdown in Alberta and Saskatchewan, resulting in a “net benefit to the lodging sector,” said Jain.