Falling prices threaten Canadian oil patch momentum – by Jeffrey Jones and Jeff Lewis (Globe and Mail – September 12, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — World oil prices sank to their lowest intraday level in more than two years after the West’s energy-security watchdog cut its forecast for demand growth, threatening the earnings momentum that had returned to the Canadian oil patch.

The International Energy Agency said in its September oil market report that economic weakness in Europe and China prompted it to temper its outlook for global oil demand in 2014 and 2015. Meanwhile, supplies are up from last year as the boom in light, tight oil from such regions as the North Dakota Bakken formation and Eagle Ford formation in Texas turns away imports to the United States.

The price weakness is remarkable in that it comes in the midst of heightened tensions in hot spots such as Iraq, Libya and Ukraine. It shows how fears of supply disruptions are having a shrinking influence on markets as production in countries outside OPEC, including Canada, surges and demand growth shrinks.

Deep discounts on heavy oil, once the bane of the Canadian sector, have shrunk since early 2013 as export transportation options have grown. But now returns for oil producers are shrinking again due to the lower world benchmarks.

“China data has been less than spectacular. Two days ago the numbers … inside the country, where demand growth for oil was supposed to be really large, disappointed [the market]. In Europe, obviously they’re still fighting off a deflationary slowdown and demand weakness has been one of the cornerstones behind the recent selloff,” said Phil Flynn, futures account executive at Chicago-based Price Futures Group.

“With all the turmoil in the world we’ve actually seen oil supplies rise – no major disruptions from anywhere in the world – in fact, we’re seeing more oil come back online from Libya and other countries in Africa, and so the high prices have now created an oil glut. It’s kind of a different world right now.”

Brent crude for October delivery finished Thursday largely unchanged at about $98 (U.S.) a barrel, after sinking as low as $96.72 during the day – its weakest level since mid-2012. U.S. benchmark West Texas Intermediate also retreated during the day, but rebounded to close up $1.16 to $92.83 a barrel in New York. Still, it is down more than 10 per cent since the end of June.

The Canadian dollar, which often trades in tandem with oil prices, dropped nearly a penny against the U.S. dollar.

“While festering conflicts in Iraq and Libya show no sign of abating, their effect on global oil market balances and prices remains muted amid weakening oil demand growth and plentiful supply,” the IEA said. “U.S. production continues to surge, and OPEC output remains above the group’s official 30 million barrels per day supply target.”

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