Oil price slides to 12-year low
U.S. stockpiles continue to grow while Canadian crude producers could face even more exposure
Oil prices crashed through $27 (U.S.) a barrel Thursday as investors fled the risky asset over fears that it still has further to fall.
Benchmark West Texas Intermediate dropped $1.24 to close at $26.21 a barrel. It briefly touched a 12-yearlow of $26.05 before bouncing slightly after a Wall Street Journal report suggesting OPEC could agree to production cuts.
“Of course, they were just rumours and the fundamental political tension within OPEC perseveres,” Scotiabank economists wrote in a note.
The drop came a day after data showed stockpiles at the biggest U.S. oil hub rose to a record 64.7 million barrels last week, inching closer to its capacity of 73 million barrels.
Crude prices have fallen by about 30 per cent since the year began amid worries that the removal of U.S. sanctions against Iran could flood the market with new exports from the Middle East, while existing inventories are already well above average.
The plunge from $100 oil began in mid-2014 when OPEC began to boost production to guard its share of the market as the U.S. increased its output.
The Toronto Stock Exchange slid 98 points lower to close at 12,087 in its fifth consecutive day of losses as the oil price shock showed up in a toll on corporate Canada’s earnings reports.
Small and medium-sized Canadian oil producers could soon be even more exposed to plunging crude prices as hedges begin to expire this year, Bloomberg reported. The end of contracts that allow companies to buy or sell future supplies at a certain price could induce them to crack down further on production and costs.
The relationship between oil prices and stock markets can be a bit like that of the proverbial chicken and egg. Low oil prices can cause fears about the health of the global economy that results in stock market sell-offs, but the effects of broader concerns about global growth, including indicators such as equities and currencies, can also send investors fleeing riskier assets for safe havens such as gold.
Worries that central banks are running out of options to stimulate economies led to generalized anxiety that helped push oil prices lower Thursday.
Federal Reserve chair Janet Yellen adopted a neutral stance in testimony before U.S. Congress and uncertainty grew over the bank’s next move after hiking rates for the first time since the 200809 recession. Earlier Thursday, Sweden’s central bank cut interest rates even further into negative territory and hinted it could reach down even further if needed.