Oil price reaches six-year low
Oil prices returned to their downward spiral Monday, with U.S. crude coming to rest at a six-year low of $43.88 US a barrel, after touching as low as $42.85 earlier in the day.
Canadian benchmark crude oil slid below $30 per barrel, as the oilpatch braced for a second round of bloodletting, with prices yet to find a bottom as OPEC continues to cut demand projections and expectations rise for sanctions relief for Iran that would flood yet more supply onto world markets.
Western Canadian Select prices fell to $30 per barrel at one stage before ending the day at $30.28 while Brent fell 2.4 per cent to $53.38 a barrel. U.S. crude futures slipped to prices not seen since March 2009. Suncor Energy Inc., one of Canada’s largest oilsands producer, has a WCS price forecast of $42 per barrel this year.
Oil prices had been slowly clawing their way back up this year after plunging 60 per cent from their highs of last summer, but rising global supply continues to undermine recovery.
OPEC cut demand for its oil in its latest report Monday, and expects a cut in U.S. tight oil production by late 2015. North American oil storage terminals are awash with crude, even as companies have initiated sizable expenditure cuts this year. U.S. stocks stood at 4.51 million barrels by the first week of March, the most since August 1982.
Analysts have predicted as much as an additional one million barrels of oil entering the market if Iran manages to strike a deal with global powers over its nuclear program, loosening restrictions on its ability to sell oil. The Iranian nuclear negotiations have picked up pace ahead of the March 24 deadline to seal a nuclear deal, RBC Capital analyst Helima Croft said.
“This makes the chances for a framework agreement around 55 per cent in our view; a deal would likely exert additional temporary downward pressure on prices,” Croft said.
The Canadian Energy Research Institute (CERI) has said that most existing oilsands projects remain profitable at WTI prices of $25-$35, but new projects will be in jeopardy.
“Projects that haven’t started construction, or are awaiting regulatory approval or just announced are definitely at risk of being delayed or, if they are multiphased, some phases might be cancelled altogether,” said Dinara Millington, an analyst at CERI.
Amid the new reality of sustained low prices, oilsands companies will have to continue chopping costs, said BMO analyst Randy Ollenberger. “You will see companies do another round of budget cuts if oil settles in the low 40s,” Ollenberger wrote in a note to clients. Persistently low prices would also see further layoffs and capital expenditure cuts.