Canadian dollar sinks as oil flirts with $40 US

The price of oil slumped to its lowest level since August on Friday on more evidence that the world is still pumping out far more crude than it needs every day, and the excess is piling up to record levels.

The price of a barrel of the North American crude oil benchmark known as West Texas Intermediate lost $1 or 2.3 per cent, falling to $40.75 US a barrel on Friday. Oil hasn't been that low since August, when it bottomed out at $37.75.

The cause was more evidence on Thursday that oil inventories keep ticking higher, with no end in sight. Stockpiles rose by 4.2 million barrels last week, the American Petroleum Institute reported Thursday, about four times more than what analysts were expecting. 

America pumped out 9.2 million barrels a day on average last week, while importing 7.2 million barrels. Both figures were higher, which added to the glut.

Worldwide, the problem is even more acute, with the International Energy Agency reporting Friday that there are currently more than three billion barrels of oil in storage — enought to fulfil the world's current demand for crude oil for more than a month, if everyone stopped pumping immediately.

"This massive cushion has inflated even as the global oil market adjusts to $50 per barrel," the IEA said.

The gloom in oil spilled over to the Canadian dollar, the value of which is closely tied to crude. Nearing midday on Friday, the loonie was changing hands at 74.97, down about a quarter of a cent and below the 75-cent level it had maintained throughout October and the first half of November.

By the close of trading it was valued at 75.03 cents US.

The Bank of Montreal put out a report Friday suggesting it doesn't see the loonie's fortunes changing any time soon. Economists widely expect the Federal Reserve to raise interest rates at its next policy meeting in December, which BMO thinks could push the loonie below 74 cents early in the New Year, before rallying to around the 78-cent level by the end of 2016.