Greece adds to toxic brew for oil prices
• The Greek debt crisis washed up in Alberta Monday, as a flight away from risky assets knocked US$4.40 off oil prices, putting additional pressure on the province’s already-battered oil industry and on oil-dependent provincial government finances.
West Texas Intermediate crude ended the day at US$52.53 a barrel. The 7.7 per cent drop represented the biggest percentage loss since February and the lowest settle- ment price since April 13.
It also raised the odds that oil, which had steadied around US$60 a barrel, could fall further rather than recover as anticipated in the second half of the year.
“We’re getting our summer correction and I don’t know where it will stop,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. “We could soon be looking at $50-a-barrel ceiling for WTI.”
Brent settled down US$3.78, or 6.3 per cent, at US$56.54, also below the 100-day average.
Another oil price retreat would be dire for the Albertabased industry, which has been on a strict spending diet for the past seven months, resulting in widespread layoffs, project cancellations and investment cuts. Alberta producers are also facing higher industry taxes and regulation following the election two months ago of a leftof-centre NDP government.
Oil prices tumbled after Greeks rejected debt terms in a referendum Sunday.
Adding to Monday’s oil selloff was China’s announcement of emergency measures to support its stock markets and the possibility of Iranian oil supplies re-entering the market if the country and global powers lock up a nuclear deal.
“Whether the deal with Iran is finalized or not, on schedule on Tuesday with the possible delay of a few days … the oil market remains very heavy,” analysts at Citigroup Global Markets Inc. said in a report Monday. “The oversupply is visible in the available weekly data, which continue to show stock builds.”
Oil prices were also weighed down by signs that U.S. shale drillers are returning to the field, as the rig count for oil rose last week for the first time since December. With belt-tightening pushing down service-sector costs by an estimated 20 per cent to 30 per cent, some plays were beginning to look attractive with oil in the US$60 range, though the latest oil retreat could dampen enthusiasm.
“We’ve got a toxic brew for the crude-oil bulls,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There’s a lot of news out there, and all of it is negative for the oil market.”
In Canada, oil companies, which usually prepare investment plans over the summer, are expected to hold back until the Alberta government has finalized a review of royalties at the end of the year.
In a report Monday, Statistics Canada predicted the oil crash will result in an 18.7-percent decline in spending this year in Canada’s mining, quarrying, and oil-and-gas extraction sector, to $67.9 billion.
“The conventional oil-andgas extraction subsector is projected to represent most of the decrease in the sector, as its capital spending is expected to decline by $8.0 billion to $30.5 billion,” the federal agency said. “The nonconventional oil extraction subsector is expected to fall by $5.0 billion to $25.1 billion.”
In a report, MNP LLP oil- field services analyst David Yager looked at the bright side of tanking oil prices — a transfer of an estimated US$4.5 billion a day from oil producers to oil consumers that is providing the biggest economic stimulus to the world economy in recent memory — and encouraging oil demand.
“This is the great paradox of the oil-price collapse,” Yager writes. “The biggest single disruptor of global crude markets and commodity prices has been about 5 million barrels a day of new production that has come on-stream in North America: 4 million barrels a day due to the innovation and application of hydraulic fracturing and 1 million barrels a day because of massive investments in Canadian oilsands production.
“Feel free to enjoy the irony. If there are two things in the world that everyone who comments on oil seems to despise, they are fracking and oilsands.”
There’s a lot of news out there, and all
of it is negative for the oil market