The crash is over. The rebuilding of Alberta’s energy-fired economy begins.
U.S. crude breaks through US$40 as oil rallies for second day on optimism for producer meeting
Oil surged above US$40 a barrel in Ny the very first time since December as central banks from the U.S. to Norway signaled they’ll still provide economic stimulus to support demand
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After a brutal 75-per-cent plunge between June 2014 and early February of the year, crude oil prices appear to have begun the long and painful march toward recovery.
The April futures agreement for West Texas Intermediate (WTI), the benchmark grade of U.S. light crude, jumped nearly six per cent Wednesday to close at $38.46 US a barrel around the New York Mercantile Exchange.
Good news? Sure. But few producers are generating a profit at these levels. Moreover, a parade of bankruptcies and defaults among debt-saddled producers, particularly in the U.S., still is coming up next. Cue the gloomy headlines.
Nonetheless, there’s finally a flicker of expect this province’s hard-hit energy industry.
Since the near-month WTI futures contract bottomed out Feb. 10, it has jumped an impressive $12.25 a barrel, or almost 47 per cent, propelling the Toronto Stock Exchange’s key energy subindex to some gain in excess of 30 per cent.
That in turn has injected new life into this aging, seven-year-old bull market, pushing the main U.S. and Canadian equity indexes towards the highest quantity of a year as of Wednesday’s close.
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Toronto’s bellwether S&P/TSX Composite Index expires nearly 14 percent from its January lows, clawing its long ago to levels last observed in early December. The loonie has also taken flight, topping 77 cents US on Thursday
No one rings a bell at market bottoms, as the old adage goes, cheap crude prices finally ended their long decline just north of $26 per barrel is only clear in hindsight.
But Wednesday’s advance – driven by plans among major producers to go over output caps in a meeting in Doha, Qatar, the following month, plus a weaker greenback and a smaller-than-expected uptick in U.S. crude inventories – served being an exclamation point on a rally that has surprised the skeptics.
Brent crude, the important thing international grade, can also be on the roll. It jumped nearly $1.60 a barrel Wednesday to close at $40.33 on London’s ICE Futures Exchange.
The lows we saw at the begining of February were possibly the lows for the year.
Although Alberta’s energy producers are expected to carry on to announce layoffs, asset writedowns and hefty losses for that current quarter, with weaker players prone to disappear or perhaps be gobbled in coming months, the stage has become set for a gradual industry recovery.
A year or two from now, most analysts expect prices to be higher – perhaps significantly higher – than they are presently.
“I believe, plus a growing chorus of people out there, that the lows we saw in early February were probably the lows for that year,” says Martin King, commodity analyst with Calgary-based FirstEnergy Capital.
“Every single day now, we’re tilting in direction of it being a tiny bit tighter when it comes to U.S. supplies. Refinery maintenance months are nearly over now, and demand still looks very good,” he adds.
“My prediction is that global oil demand will in fact hold up better still than the International Energy Agency has stated. So we are trending to a significantly tighter market.”
U.S. crude output, which peaked at 9.7 million barrels each day (b/d) this past year, continues to be trending lower for months now. It’s currently around 9.A million b/d and King expects it to drop to roughly 8.4 million b/d through the other half.
As production drops elsewhere away from Organization of Petroleum Exporting Countries (OPEC) and worldwide oil consumption keeps growing, he figures which should slowly sop in the current global supply surplus of about 2 million b/d.
King is hardly forecasting coming back to triple-digit oil prices, of course. His current projections demand WTI prices to average just $37.25 a barrel this season, reaching a higher of $45 through the fourth quarter, and $55 in 2017.
He also doesn’t rule out the possibility of another dip in prices if oil traders start to doubt the commitment of massive global producers like Russia, Iraq, Saudi Arabia yet others to any output cap in their meeting in Doha on April 17.
“Prices happen to be partly talked up by this talk of a production freeze, but they’ve got another whole month to help keep talking in the market,” says King. “So whether the market might find through that eventually I’m not sure. But traders do appear to be looking through the present high inventory levels and prices just keep marching higher.”
That said, King believes the underlying trend in crude prices is now up, not down, and that he doubts that oil will slip underneath the $30 level again within this cycle.
“I believe the underside continues to be put in place now, and it is likely to be a gradual recovery came from here. The boom times is a while in returning. There’s going to be a period of consolidation and rebuilding now, and that could easily extend for more than a year yet,” he states.
That’s little solace for that thousands of Albertans who’ve lost their jobs, their homes as well as their businesses. However for those who are still hanging on, there’s finally a flicker of hope that better days lie ahead.
glamphier@postmedia.com
