Oil moves higher, pushing Canadian dollar above 80 cents
Saudi Arabia raises oil prices, but the oversupply in U.S. could still drive crude as low as $20
Oil prices rose Tuesday after Saudi Arabia boosted the price of its output to Asian and U.S. buyers and as fighting threatened oilfields in Libya
Still, some analysts say crude could fall to $20 a barrel because of continued oversupply.
West Texas Intermediate crude, the most common North American contract, was up 74 cents to $50.32 US a barrel this afternoon, while Brent, the international contract traded in London, was up $1.51 to $61.06 at the close of trading.
The oil-sensitive Canadian dollar rose by one third of a cent to 80.05 US cents.
Both Brent and WTI oil were recovering from a steep plunge in prices Monday, proof that oil markets remain volatile.
Saudi Arabia’s Aramco surprised markets last November by slashing its prices in the U.S. in a bid to compete against the domestic production boom.
Saudis prices raised
It has made repeated price cuts to retain market share in the face of a worldwide glut of oil and slowdown in demand, but on Tuesday, it changed direction.
Aramco announced it would increase prices for light oil delivery in Asia and Europe in April by $1.40 US and in the U.S. by $1 a barrel.
That helped push up the price of Brent crude by 2.5 per cent, as reports came in from Libya rival forces carrying out air strikes on oil terminals and an airport. That could hit supplies from the OPEC member, which have been intermittent because of the ongoing conflict.
WTI also rose, but not so sharply, in part because of continued signs of a glut of U.S. oil.
Inventory data by the Energy Information Administration is issued on Wednesday and recent reports have shown stockpiling of oil supplies.
How about $20 US a barrel?
There was new evidence today that U.S. storage tanks for oil could be full by mid-April, worsening the oversupply situation.
That could put further downward pressure on WTI and on gas prices, though an unresolved refinery strike currently under way could throw off the timing.
For the past seven weeks, the United States has been producing and importing an average of one million more barrels of oil every day than it is consuming.
The extra crude is flowing into storage tanks, especially at the country's main trading hub in Cushing, Okla., pushing U.S. supplies to their highest point in at least 80 years, the EIA reported last week.
"The fact of the matter is we are running out of storage capacity in the U.S.," Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.
CBC asked Calgary-based Enbridge, a big player in the storage business, about oil tank storage, but Enbridge replied that tank storage levels are proprietary information.
Morse has suggested oil could fall all the way to $20 a barrel, and he’s not the only analyst pointing to lower oil prices to come.
Although oil companies have cut back on spending on new production, their output is still rising. It could be that $20 a barrel might be needed to stop them pumping oil.
With files from The Associated Press