OPEC minister sees oil price floor at $45
Glut of oil has U.S. traders taking short positions on crude contracts
An OPEC official predicted that oil prices had bottomed out on Monday, briefly raising hopes that the steep slide might be easing.
West Texas Intermediate crude, the benchmark contract in the U.S., moved up early in the morning, but ended the day down 45 cents at $45.16 US a barrel at mid-afternoon on Monday, while Brent crude was down 67 cents at $48.12. Western Canada Select oil is now at $31.81.
“Now the prices are around $45-$55 and I think maybe they reached the bottom and will see some rebound very soon,” Abdullah al-Badri, Secretary-General of OPEC, said in an interview on Monday.
But there is still plenty of negative sentiment about oil. Many U.S. traders are not convinced the worst is over and are building short positions in WTI contracts.
OPEC’s most influential member, Saudi Arabia, saw a smooth transition to King Salman after the death last week of King Abdullah.
King Salman stayed with veteran Ali al-Naimi as oil minister, a signal there may be little change of thinking over Saudi Arabia’s level of production.
Oil prices have been falling since last September on a glut of supply and took a steep plunge in late November, when the Saudis convinced fellow OPEC members not to trim production. Prices are down a further 15 per cent this year, amid uncertainty over world growth, particularly in Europe and China.
There's still a glut of oil
U.S. fund managers see Saudi intransigence on production and increased U.S. output as a recipe for lower prices.
Dirk Lever, managing director of equity research at Altacorp, says action by the Saudis to cut production would be more convincing to the market than a few words of reassurance from an OPEC official.
"We have to wait and see if that translates to some kind of production cut or something that will be more than just a verbal signal to the market," he told CBC News.
The Toronto stock market was little changed Monday as traders played it cautious ahead of the U.S. Federal Reserve's latest word on interest rates, scheduled for Wednesday.
The S&P/TSX composite index rose four points to 14,783. The Canadian dollar was trading lower at 80.26 cents US.
A report from TD Bank issued today outlined the impact of falling oil prices on the Canadian economy, predicting job losses in the oil patch and reduced incomes for workers in Alberta and Saskatchewan. It predicts oil could drop temporarily below $40 US a barrel, with an average in 2015 of $47 US.
Capital spending in the oil sector is expected to be cut by 30 per cent this year, “dealing a blow to overall business investment in Canada,” TD predicted.
While Canadian households will save an estimated $900 annually on gas and heating, federal and provincial governments will be hurt by falling revenues.
TD is predicting a further cut in rates by the Bank of Canada in March, following last week’s 0.25 per cent decline as a result of the impact of lower oil prices on the economy.
It also said it expects the Canadian economy to grow by just two per cent this year, down from its December projection of 2.3 per cent.