The optimism expressed two months ago about the outlook for oil and the belief that it could even reach US$100 a barrel by the end of 2018 has been replaced by much pessimism . While the North American benchmark West Texas Intermediate (WTI) bounced back recently, there are indications that it could again fall to below US$50 a barrel after already briefly dipping below that psychologically important price. This would be disastrous for Canada’s energy patch because many oil producers, especially those in the oil sands , have breakeven prices of US$50 a barrel or even higher. Bitumen producers such as MEG Energy Corp. (TSX:MEG) and Cenovus Energy Inc. (TSX:CVE) (NYSE:CVE) are particularly vulnerable because of their high breakeven costs and the deep-discount applied to Canadian heavy oil known as Western Canadian Select (WCS). Why did oil collapse? Many energy industry analysts were caught off-guard by oil’s latest price collapse, which began in late October over concerns that a new global supply glut had begun to develop. Those fears arose despite Trump reinstating sanctions on Iran, the deterioration of Venezuela’s oil output and the risk of further outages in Libya. While the reinstated sanctions against Iran were expected to […]
