Crude oil falls to lowest price since February

Crude oil prices dipped to near a nine-month low as they fell for a 10th consecutive day, potentially having an impact on the Bank of Canada interest rate decision next month.

West Texas Intermediate dipped to a low of US$59.26 before closing off 83 cents or 1.4 per cent to US$59.84.

Since its peak last month, WTI is down about 22 per cent as it experienced a fifth consecutive weekly drop.

And the December crude contract was down 48 cents at US$60.19 per barrel to the lowest level since February.

A glut of oil production is the main cause of the declines in prices of WTI and Brent crude.

The United States has taken the crown as the world’s leading oil producer after output increased by two million barrels per day over the last year to reach 11.6 million bpd.

At the same time, OPEC is overproducing and sanctions have been watered down against Iran as the U.S. granted waivers on the sanctions to eight countries over concerns that a complete end of Iranian imports would cause economic disruptions.

“But sentiment has also driven down the prices with fears on global growth weakening and therefore slowing oil demand,” says Cavan Yie, a portfolio manager at Manulife Asset Management.

The situation is compounded in Canada where the price differential with the Western Canadian Select has widened considerably because of the lack of pipelines to carry crude out of Alberta. And a Montana judge’s ruling that the Keystone XL project needs further work is another black mark for Canadian energy investors, he said.

“It’s been a challenging year so far for the energy patch,” Yie said in an interview.

Low Canadian oil prices are having a negative impact on government tax revenues and the Alberta economy, which will likely impact the Bank of Canada’s rate hike decision next month, he said.

Canada’s heavy oil benchmark, Western Canadian Select, is less than $17 per barrel. The Bank of Canada’s monetary policy report assumed a price at about twice that level.

Some of the decrease reverses a steep run-up in anticipation of sanctions against Iran, says BMO Financial Group chief economist Douglas Porter.

“The severe drop brings WTI prices back to where they ended 2017, which was actually the highest level of the year. So, current prices are still well above last year’s average of $51,” he wrote in a note.

Porter said he still sees crude averaging US$65 next year, but the swift decrease of late will push the inflation rate in many countries below two per cent in the coming few months.