Oil prices could drop to $43 a barrel

An 'oversupply of oil' - lol.  Anything but a world depression. I suppose that commodities prices haven't been crashing across the board!

TSX down 329 points as oil slumps to new multiyear lows 

Morgan Stanley predicts oil prices could drop to $43 US a barrel next year

CBC,

8 December, 2014

The Toronto Stock Exchange shed 329 points or two per cent of its value on Monday as oil prices continued their slide and a major U.S. investment bank said there is plenty more downside left.

The TSX composite index had earlier traded below the 14,000-point level before recovering a little late in the trading day to close at 14,144.17. It was the biggest one-day drop since April 2013. The sell-off came on the first day of trading after the index lost about two per cent last week.

'Investors are selling everything.'
- David Cockfield, portfolio manager

Basically everything was lower, as banks, tech stocks and industrials joined commodities in sliding into the red. (The only exception was health care, which was clinging to a small gain on the day.)

The TSX is now at its lowest point since the middle of October, and Canada's benchmark stock index is now only up by just under four per cent since the start of the year. The Canadian dollar fell 0.38 of a cent to 87.09 cents US.

Oil prices have tumbled from around $105 this summer to below $65 today, and stock markets heavy on energy shares are starting to follow suit. (The Associated Press)

"The psychology is extremely negative. We’re back into panic mode,” said David Cockfield, managing director and portfolio manager at Northland Wealth Management. “The market in Canada is becoming more and more irrational.

"People are selling because the market is down and they think it’s going to go down further,” he said. “They’re probably going to be right because they’re selling."

Cockfield, who is waiting on the sidelines until the dust settles, said the oil and gas sell-off has unnerved the market and now "investors are selling everything."

Bleak Chinese data prompts worries

One of the big catalysts was disappointing data out of China showing the country is buying less goods from overseas — and shipping out less to the rest of the world.

China's imports shrank unexpectedly in November, falling 6.7 per cent, while export growth slowed, fuelling concerns the world's second-largest economy could be facing a sharp slowdown.

China's crude oil imports rose nine per cent in November from October to 6.18 million barrels per day, suggesting the country may be boosting its reserves.

"If one looks at the overall economic indicators, they are all showing a picture of China which is stagnating rather than having strong growth," said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland.

That's bad news for a country like Canada, which has long been criticized for being heavily dependent on shipping natural resources to the rest of the world.

Oil prices keep sliding lower, with Brent Crude for January down $2.95 at $66.12 a barrel at the close of trading at 4 p.m. ET, having fallen $2.30 to $66.77 US — its lowest since October 2009.

Oil was selling at $105 a barrel as recently as July, but the price has been falling ever since.

U.S. crude was down $2.86 at $62.99 a barrel. The U.S. contract, also known as West Texas Intermediate, touched $63.72 last week, its lowest since July 2009.

In a report dated Dec. 5, U.S. investment bank Morgan Stanley said oil prices could fall as low as $43 a barrel next year. 

"Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley analyst Adam Longson said.

"Given continued oversupply and still no sign yet that U.S. oil production starts to show any reaction, perhaps prices will continue to head lower," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

Canada: Stocks, consumer confidence, housing gripped by crashing oil prices

Oil’s collapse is deepening, cutting a wide swath across Canada’s economy in the process.

Global News

8 December, 2014

Outright fear gripped Canadian energy stocks on Monday after an influential analyst report suggested crude prices could fall to as low at $43 a barrel (U.S.), sparking a sell-off of major oil patch firms like Suncor, Imperial Oil and Encana.

The report helped send oil prices to levels not seen since mid-2009 when the Canadian and global economy were mired in recession. International oil prices have now fallen more than 35 per cent since the summer.

U.S. investment bank Morgan Stanley said it believes oil could crumble to the low-$40s range, with “peak oversupply” flooding the market during spring or early summer 2015.

The read-through: further turbulence lies ahead, for stock markets, the Canadian dollar, government revenues and the economy. “Markets risk become unbalanced,” the Morgan Stanley report said.

A report from CIBC also released Monday suggests the loonie could hit as low as 81 cents by late next year, down from around 87 cents U.S. currently.

MORE: TSX plunges amid oil and energy sell-off

The energy sector’s plunge led a rout of the Toronto Stock Exchange on Monday afternoon, with the main S&P TSX index falling more than 450 points or 3 per cent before rebounding to a decline of 330 points, or 2.3 per cent.

Confidence shaken

Rattled share prices are being joined by consumers. Canadians’ outlook for housing and their job security have deteriorated alongside oil’s plunge.

Poll figures released by Ottawa-based Nanos Research on Monday showed the share of respondents who say they feel at least “somewhat” secure in their job declined to 67.7 per cent. The same figure on Nov. 21 stood at 70.1.

More are also uncertain about property values, which have enjoyed big run-ups in recent years in markets like Calgary, thanks to rallying oil prices.

‘The near-40 per cent drop in oil prices since July is likely to hit commodity-driven markets’ – TD

The share of respondents who expect values to remain at least the same through the first half of 2015 fell to 83.4 per cent versus 84.2 per cent in late November.

The share of those who said they thought prices would fall or weren’t certain where home prices would head rose to 16.6 per cent, up from 15.8 per cent.

“The near-40 per cent drop in oil prices since July is likely to hit commodity-driven markets notably over the next year,” Diana Petramala, an economist at TD Economics said Monday.

“Markets like Calgary and Edmonton, which were once expected to remain beacons of strength for Canadian housing, are expected to soften in 2015,” the TD economist said.