Crude oil tumbles on report that OPEC plus could hike production

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This article was published 20/11/2022 (765 days ago), so information in it may no longer be current.

CALGARY – Crude oil prices slumped to a 10-month low Monday morning before rebounding at midday, adding to the volatility that has dogged the Canadian energy sector recently.

The benchmark West Texas Intermediate plunged by as much as US$5 in the early part of the day, trading as low as US$75 in reaction to a Wall Street Journal report saying Saudi Arabia and other OPEC-plus countries may increase oil output by up to 500,000 barrels per day at their Dec. 4 meeting.

Such a move would be an about-face for OPEC plus, which earlier this fall agreed to cut production by two million barrels per day. If it happens, a production hike would help to offset new European Union sanctions on Russian oil, which are set to take effect Dec. 5.

Oil prices have been unravelling in recent days, with the WTI benchmark losing eight per cent of its value last week alone. Traders have been worried about the impact of a possible global recession on oil demand, as well as rising COVID cases in China and their potential for slowing the economy in that country.

While crude prices did rebound by midday Monday to make up much of the day’s losses, oil has still lost close to 30 per cent of its value since its June peak, when WTI hit an eye-popping US$110 per barrel.

That’s weighing on Canadian energy stocks, said Rory Johnston, energy analyst and founder of the Commodity Context newsletter.

“If you remember back to the beginning of this year, or even that April to June period, there was pretty much this solid thesis underpinning all oil companies, and specifically Canadian oil companies . . . which is that ‘we know things are going to get tighter, we know prices are going to stay high,’ ” Johnston said.

“But this volatility is going to make anyone who wasn’t certain about that thesis in the first place take a step back.”

The S&P/TSX capped energy index was down 2.17 per cent as of midday Monday, while the S&P/TSX composite was down 0.32 per cent, weighed down by energy sector losses.

The S&P/TSX capped energy index has declined approximately 10 per cent since June. However, many Canadian oil and gas companies have said they can still earn healthy profits with a WTI price in the US$70 range.

With oil prices as high as they’ve been this year, Canadian energy companies have been investor favourites for much of 2022.

A ranking released in September of the best-performing stocks on the TSX showed that 14 of the 30 top spots by that point in 2022 were oil and gas companies.

This report by The Canadian Press was first published Nov. 21, 2022.