World oil prices fall to $59
Lisa Wright
Business Reporter
Oil prices fell below $60 a barrel yesterday – and gasoline prices are tumbling too – but you may want to hold off on celebrating those sweet savings at the pumps.
Economists warn of the gloomier big picture: namely, that we're far from out of the woods when it comes to the global financial crisis.
And with oil and our coveted tar sands crucial to Canada's economy and prices continuing to fall, things are likely to get much worse before they get better, they say.
That was certainly apparent on world financial markets yesterday, where crude oil's slide set off a torrent of bad economic news that sent investors scrambling for the exits, fearing the recession is going to be more painful than expected.
Oil closed yesterday at $59.33 (U.S.) per barrel, down $3.08, and the price declined slightly in Asian trading today. Crude now costs about 60 per cent less per barrel than it did in mid-July.
On the plus side, Toronto-area motorists today will discover gasoline prices fell overnight by 1.9 cents per litre, said Dan McTeague, a Liberal MP and industry watchdog. McTeague predicted last night that prices today would average 83.4 cents per litre, down from 85.3.
He said the drop results from demand destruction, caused by the economic downturn, and he expects the trend to continue. "Prices are going down because there's nowhere for them to go but down."
The price of crude hit its lowest level since March 2007 on speculation the International Energy Agency will cut its 2009 oil-demand forecast because of slowing economic growth.
But while consumers, worried about a weak job market and slumping investments, are grateful for the price relief, economic reports increasingly suggest they're hanging onto whatever savings they see at the pump.
Of course, all the negative sentiment dented the already ailing loonie, which dipped another third of a cent to 83.28 cents (U.S.), trading on international markets because Canadian banks were closed for Remembrance Day.
"The view of the market is very pessimistic," said Addison Armstrong, director of market research for Tradition Energy in Stamford, Conn.
"Prices are lower because of sagging global equities (stocks) as well as the view that China's stimulus package is insufficient to prop oil demand in the face of a prolonged global economic slowdown," Armstrong said.
Adding to the misery yesterday was a new Bank of Montreal report that predicts the deepening recession in the U.S., and slower demand in developing economies such as China, will keep commodity prices such as oil, metals and wheat lower at least until 2010, rather than recovering next year as originally anticipated.
BMO's commodity price index plummeted 16.7 per cent in October with all commodity groups suffering major losses. Oil prices plunged a stunning 26.2 per cent in October, and the bank says they're unlikely to recover any time soon.
On top of that, forecasting firm Global Insight said yesterday that Canada has already fallen into a recession that is likely to result in about 100,000 lost jobs over the next few months.
The forecast, to be officially released today,says the Canadian economy will suffer two consecutive quarters of negative growth – the technical definition of a recession – starting in the last three months of this year.
And it won't be a close call. Global's managing director Dale Orr says the October-December period will see the economy shrinking by 1.4 per cent on an annualized basis, with a further 1.2 per cent contraction in the first quarter of 2009.
Orr noted Canada has undergone a full year of slow, near-zero growth, but that has been mostly confined to the exports sector and been reflected in lower corporate profits.
On Monday, Prime Minister Stephen Harper and the provincial premiers ended a day of talks about bolstering the faltering economy by creating thousands of construction jobs, stabilizing pensions plans and exploring options to rescue the crashing auto sector.
In Washington yesterday, U.S. House Speaker Nancy Pelosi said federal aid for the failing U.S. automobile industry was urgently needed and that she was confident Congress could act on emergency bailout legislation next week.
Meanwhile, bad earnings reports and weakening commodity prices sent key stock markets lower yet again.
Toronto's S&P/TSX composite index fell 264.80 points to end the session at 9,424 on overall weakness headed by metals and materials stocks.
The TSX diversified metals sector slid 10.6 per cent. And Vancouver miner Teck Cominco Ltd. fell a stunning 20 per cent, losing $2.20 to $8.75 – its biggest loss in 20 years.
The crude futures contract briefly touched its lowest level in 21 months – down to $58.32 – but regained some ground to close 4.9 per cent lower, or down $3.08, to $59.33 (U.S.)
BMO economists expect oil will average about $70 (U.S.) a barrel in 2009 compared to this year's $102 average.
Oil-sands projects will be profitable if crude is priced at $95 to $100 per barrel in coming decades, said Ryan Todd, an analyst for Deutsche Bank AG in New York. Bitumen can be tapped at existing projects for roughly $40 a barrel, he added.
With files from Stacey Askew and the Star's wire services
