Crude oil price hits six-month high
TORONTO — An upbeat forecast from a big U.S. investment bank, along with fears over how a disruption in crude production in Nigeria will impact global supply, helped rally oil prices to a six-month high Monday.
The June contract for benchmark North American crude rose $1.51 to US$47.72 a barrel, a level not seen since Nov. 3, when it settled at US$47.90. Higher oil prices helped lift Canada’s largest stock market, the S&P/TSX composite index, up one per cent or 144.91 points to 13,893.49. All sectors rose on the TSX, with mining and energy companies leading the charge.
The positive sentiment in oil is being driven by production problems due to conflict in Nigeria, adding to ongoing cutbacks by oilsands producers in the fire-ravaged Fort McMurray, Alta., area.
Temporary stoppages in both places have helped ease the glut in global supply and raise crude prices.
Oil prices also got a boost from a forecast from Goldman Sachs that said the crude market has gone from oversupply to a “deficit” much earlier than expected.
Goldman Sachs, normally bearish on oil, now predicts West Texas Intermediate crude will rise to US$50 in the second half of this year after having earlier predicted it could drop below US$20 barrel amid increasing supplies and flagging demand.
“All of that is compounding on the outlook to push prices a little higher,” said Craig Fehr, a Canadian markets strategist with Edward Jones in St. Louis. “What we’ve seen is a steady outlook for global demand coupled with a reduced outlook for supply given the disruptions in Nigeria and elsewhere. That combination has really put a floor underneath oil very recently.”
Fehr warned oil prices will continue to be volatile, and does not expect them to rise to $70 to 80 a barrel in the near term.
The crude rally also helped send the oil- sensitive Canadian dollar higher, with the currency gaining 0.23 of a U.S. cent to 77.54 cents US.
Elsewhere in commodities, July natural gas slumped seven cents to US$2.18 per mmBtu, while June gold edged up $1.50 to US$1,274.20 a troy ounce. July copper added two cents to US$2.09 a pound.
In New York, the Dow Jones industrials shot up 175.39 points to 17,710.71, while the broader S&P 500 rose 20.05 points to 2,066.66 and the Nasdaq added 57.78 points to 4,775.46, with help from a big gain in the shares of tech giant Apple Inc.
Investors might question Warren Buffett’s long-standing aversion to tech stocks after his Berkshire Hathaway bought 9.8 million shares of Apple.
Buffett has always avoided technology companies because he said it was too hard to pick which ones would prevail long term, although he made an exception to that rule to buy a major IBM stake in 2011.
The stake comes with Apple’s shares under pressure. Billions in value have been wiped from the books since Apple reported a sizeable drop in iPhone sales in late April. Shares, down 15 per cent over the past month, jumped three per cent Monday.
Buffett was also reported to be considering joining a bid to acquire Yahoo. But he said Monday he would only act as a potential financing partner for Quicken Loans founder Dan Gilbert’s bid.
Buffett is known for investing in comparatively boring companies when he understands the industry well, such as Geico insurance, Wells Fargo, Coca-Cola, American Express and See’s Candy.
Berkshire revealed the new Apple investment in a filing with the Securities and Exchange Commission detailing a number of changes to its $129-billion portfolio. But the filing didn’t disclose who made the Apple investment. Berkshire has two other investment managers, who each handle about $9 billion.