Global oil prices were battered by a “kitchen sink” full of headwinds on Friday, sending U.S. and European benchmarks tumbling roughly 20 per cent from their October highs.
Fears of a growing glut continue to intensify now that U.S. sanctions on Iran that largely fuelled last month’s rally lack the teeth to impact global supply as much as had been expected.
Iranian crude will continue to flow to eight major buyers, including China, thanks to exemptions from Washington announced earlier this week. Surging U.S. shale production, coupled with higher output from Saudi Arabia and Russia, are expected of offset shut-in Iranian barrels.
“This boosted output came just as global demand growth expectations eased and equity markets tumbled, hitting oil prices from both sides,” Scotiabank commodity economist Rory Johnston told Yahoo Finance Canada in an email on Friday. “Washington added further weight to crude contracts as the Nov. 4 ‘hard deadline’ to cease imports from sanctioned Iran was blunted by the granting of waivers that temporarily exempt some purchasers for 180 days.”
West Texas Intermediate oil for December fell for a tenth-consecutive day, dipping below US$60 a barrel. European benchmark Brent crude fell below $70 a barrel for the first time since early April. The S&P/TSX Capped Energy Index (SPTTEN) fell as much as 1.3 per cent in early trading on Friday, before paring some of its losses.
Josef Schachter, president of Schachter Energy Research Services Inc., said he’s been calling for WTI oil to dip below $60 for six months. He points to the recent seven-week streak of inventory builds reported by the U.S. Energy Information Administration as evidence of chronic oversupply stateside.
North America’s energy sector was dealt yet another blow Thursday night when a federal judge in Montana blocked TransCanada Corp.’s (TRP.TO) long-delay Keystone XL pipeline project, pending further environmental review.
“Sound familiar?” GasBuddy.com petroleum analyst Dan McTeague asked, referring to a similar ruling by a Canadian federal court on the Trans Mountain expansion in late August.
“We’re back to levels in crude prices that we have not seen since Feb. 13. We’ve almost come full-circle to this time last year,” McTeague told Yahoo Finance Canada. “Everyone is taking a haircut here. There are no redeeming qualities or opportunities.”
He agrees that weaker-than-expected U.S. sanctions on Iran are the main driver behind the latest pressure on global prices for crude, suggesting analysts had expected a “no exceptions stance.”
“The lost barrels on Iran aren’t suddenly lost, and now you’re left with a glut. And it’s the glut that’s driving prices,” he said. “Every Tom, Dick and Harry has a waiver. China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey.”
He describes a “kitchen sink” combination of headwinds butting against crude prices, and is particularly concerned about Canada’s diminishing role as a global energy player.
“Canada has lost its mojo,” McTeague said.
Schachter expects energy investments will remain under pressure through tax-loss selling season, before mounting a recovery as demand for oil improves through the winter months. He sees stocks starting to price in “every possible negative” for oil, a trend he predicts will tee up a up a buying opportunity in Canadian energy.
“The stocks are pricing in that Canada will never recover, and that energy will never recover,” Schachter said. “My come back to that is, ‘Winter is Coming.’”