Energy prices in U.S. dollars performed poorly again last week. WTI crude fell below $50/barrel, shedding another 5% value on the week.
The Baker Hughes (NYSE:BHI) indicator of the number of U.S. drilling rigs in operation, released on Friday, came in at 876, up 19 from the week before. This was the first relatively significant jump in the indicator since the beginning of the year.
According to Jeffrey Currie of Goldman Sachs (NYSE:GS), the main issue in the global oil industry is growing supply. Over the last few months, low-cost producers such as Russia, Saudi Arabia and Iraq have increased market supply by 500K barrels per day. Saudi Arabia is producing at a rate of 10.6 million barrels per day, an all-time record. Mr. Currie believes that these countries are aiming at full-capacity production, which will have a major impact on oil production in the U.S.
The Chinese PMI, released on Friday, has not been this low in almost 15 months. This is one more sign of a slowdown in the second largest economy in the world, and it placed additional downward pressure on commodity prices. Chinese demand for oil and other commodities helps underpin prices.
The fact that our loonie is trading at its lowest level since 2009 is preventing our cost of fuel, in Canadian dollars, from falling as fast as that paid in U.S. dollars. When all is said and done, we are still at levels close to $0.20/litre below the prices paid last year, so now is a good time to budget part of your energy supply risk.
