Oil prices took a hit on Thursday as the International Energy Agency announced it would release 60 million barrels of oil from its government members' strategic reserves.
Photograph by: Oil, Oil
CALGARY — Oil prices and the shares of Calgary oil firms plunged in lockstep Thursday after the Paris-based International Energy Agency announced it would release 60 million barrels of oil from its government members' strategic reserves.
The United States agreed to release half — 30 million barrels — in a move it said would help protect the fragile global economy but critics were quick to dismiss as motivated for political gain.
New York-traded crude erased its gains for the year after the IEA said two million barrels a day for 30 days beginning next week would be released to help make up for the Libyan supply disruption.
Oil for August delivery dropped $4.39 to $91.02 U.S. a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 18.
Brent crude for August delivery fell $6.95, or 6.1 per cent, to $107.26 a barrel on the London-based ICE Futures Europe exchange, the lowest price since Feb. 22, but still up 13 per cent this year.
In Calgary, Mike Tims, chairman of investment firm Peters & Co., said he is skeptical of the move.
"We have those reserves and stocks for a reason," he said.
"I wouldn't say the current dislocations in the market are severe enough to merit drawing on the reserves. I'd prefer they retain them and not make the system, in effect, by drawing on the stocks . . . more sensitive to potential future events."
On the Toronto Stock Exchange, Husky Energy Inc. fell 5.5 per cent to $26.60 in its first trading session since announcing a $1.2-billion bought deal equity issue on Wednesday.
Petrobank Energy and Resources Ltd., was down five per cent, Canadian Oil Sands Ltd. was off 2.8 per cent and both Nexen Inc., and Talisman Energy Inc., fell 2.1 per cent.
In a statement, Calgary-based TransCanada Corp., said America's reliance on "unstable crude oil" from the Middle East could be partly alleviated by its Keystone XL pipeline project, designed to bring up to 1.1 million barrels of oil per day into the U.S.
The $7-billion expansion from Alberta to refining hubs in Louisiana and Texas has been delayed on environmental concerns and claims the line would promote oilsands development over renewable energy sources in the U.S.
On Thursday, the U.S. House Energy and Commerce Committee voted in favour of a bill which would force a Nov. 1 presidential decision on Keystone XL if passed by the full House of Representatives.
A decision had been expected by year-end, almost a full year behind original estimates.
IEA members have conducted co-ordinated releases of emergency stockpiles on two other occasions since the group was founded in 1974. The first was during the 1991 Persian Gulf War; the second was in the aftermath of Hurricane Katrina, which slammed into U.S. refineries and offshore oil platforms in 2005.
Canada does not have a strategic oil reserve.
"From a Canadian producer perspective, we support a market-based approach," said Travis Davies, spokesman for the Canadian Association of Petroleum Producers.
"As such, we are price takers in the global market and obviously, there is an impact on the bottom line here for us in terms of commodity price. But price volatility is something we deal with as part of our business."
Helen Currie, director of commercial risk and portfolio analysis for Houston-based ConocoPhillips Co., told a Calgary conference on commodities, the economy and money on Thursday the move by the IEA will depress oil prices in the short run.
But she wondered if the crude oil being released onto markets would be of the right grade to meet demand from refiners and whether it would truly address the global oil supply crunch.
"We're an 85 million to 86 million barrel-a-day market, worldwide, so is that enough?"
James Hamilton, a University of California professor of economics, told the conference the additional supply would offer a temporary supply-demand correction but do nothing to address a world trend of declining supply and growing production.
"In terms of the long-run challenges, this isn't going to do anything for Saudi's production, it's not going to do anything for Chinese demand," Hamilton said.
"It's too easy to get wrapped up in what happens this week and next week and those are exciting. But there really is a long-term challenge here that isn't in anybody's imagination, I don't think."
In the U.S., critics said lower energy prices from the move will be too short-lived to benefit the re-election of President Barack Obama.
"What shocks me about this move is its timing," said Jeremy Mayer, an associate professor at the School of Public Policy at George Mason University. "This is so far away from the presidential election (in November 2012) that I don't think it makes political sense to do this."
Republicans have blamed Obama's environmental policies and his hopes that alternative fuels such as ethanol and battery-powered cars would cut oil imports for high oil prices.
With files from Dina O'Meara, Calgary Herald, and Reuters
dhealing@calgaryherald.com
rpenty@calgaryherald.com
The United States agreed to release half — 30 million barrels — in a move it said would help protect the fragile global economy but critics were quick to dismiss as motivated for political gain.
New York-traded crude erased its gains for the year after the IEA said two million barrels a day for 30 days beginning next week would be released to help make up for the Libyan supply disruption.
Oil for August delivery dropped $4.39 to $91.02 U.S. a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 18.
Brent crude for August delivery fell $6.95, or 6.1 per cent, to $107.26 a barrel on the London-based ICE Futures Europe exchange, the lowest price since Feb. 22, but still up 13 per cent this year.
In Calgary, Mike Tims, chairman of investment firm Peters & Co., said he is skeptical of the move.
"We have those reserves and stocks for a reason," he said.
"I wouldn't say the current dislocations in the market are severe enough to merit drawing on the reserves. I'd prefer they retain them and not make the system, in effect, by drawing on the stocks . . . more sensitive to potential future events."
On the Toronto Stock Exchange, Husky Energy Inc. fell 5.5 per cent to $26.60 in its first trading session since announcing a $1.2-billion bought deal equity issue on Wednesday.
Petrobank Energy and Resources Ltd., was down five per cent, Canadian Oil Sands Ltd. was off 2.8 per cent and both Nexen Inc., and Talisman Energy Inc., fell 2.1 per cent.
In a statement, Calgary-based TransCanada Corp., said America's reliance on "unstable crude oil" from the Middle East could be partly alleviated by its Keystone XL pipeline project, designed to bring up to 1.1 million barrels of oil per day into the U.S.
The $7-billion expansion from Alberta to refining hubs in Louisiana and Texas has been delayed on environmental concerns and claims the line would promote oilsands development over renewable energy sources in the U.S.
On Thursday, the U.S. House Energy and Commerce Committee voted in favour of a bill which would force a Nov. 1 presidential decision on Keystone XL if passed by the full House of Representatives.
A decision had been expected by year-end, almost a full year behind original estimates.
IEA members have conducted co-ordinated releases of emergency stockpiles on two other occasions since the group was founded in 1974. The first was during the 1991 Persian Gulf War; the second was in the aftermath of Hurricane Katrina, which slammed into U.S. refineries and offshore oil platforms in 2005.
Canada does not have a strategic oil reserve.
"From a Canadian producer perspective, we support a market-based approach," said Travis Davies, spokesman for the Canadian Association of Petroleum Producers.
"As such, we are price takers in the global market and obviously, there is an impact on the bottom line here for us in terms of commodity price. But price volatility is something we deal with as part of our business."
Helen Currie, director of commercial risk and portfolio analysis for Houston-based ConocoPhillips Co., told a Calgary conference on commodities, the economy and money on Thursday the move by the IEA will depress oil prices in the short run.
But she wondered if the crude oil being released onto markets would be of the right grade to meet demand from refiners and whether it would truly address the global oil supply crunch.
"We're an 85 million to 86 million barrel-a-day market, worldwide, so is that enough?"
James Hamilton, a University of California professor of economics, told the conference the additional supply would offer a temporary supply-demand correction but do nothing to address a world trend of declining supply and growing production.
"In terms of the long-run challenges, this isn't going to do anything for Saudi's production, it's not going to do anything for Chinese demand," Hamilton said.
"It's too easy to get wrapped up in what happens this week and next week and those are exciting. But there really is a long-term challenge here that isn't in anybody's imagination, I don't think."
In the U.S., critics said lower energy prices from the move will be too short-lived to benefit the re-election of President Barack Obama.
"What shocks me about this move is its timing," said Jeremy Mayer, an associate professor at the School of Public Policy at George Mason University. "This is so far away from the presidential election (in November 2012) that I don't think it makes political sense to do this."
Republicans have blamed Obama's environmental policies and his hopes that alternative fuels such as ethanol and battery-powered cars would cut oil imports for high oil prices.
With files from Dina O'Meara, Calgary Herald, and Reuters
dhealing@calgaryherald.com
rpenty@calgaryherald.com
© Copyright (c) The Calgary Herald
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