Sat. Feb 24th, 2024

Predicted at $100, the barrel of oil is closer to ;t the $75

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Oil markets await Thursday's meeting of OPEC members and its allies, which could lead to further production cuts.

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In two months, the price of a barrel of crude oil has fallen by more than 20%. At the height of its price, at the end of September, several such as Bank of America or Goldman Sachs were counting on a barrel at more than US$100 before 2024.

Almost immediately after these forecasts were released, the market began to fall. The price of North American crude, West Texas Intermediate (WTI), has tumbled below the US$80 mark. Last week, it even stood at US$73.

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According to the general director of energy research at Raymond James, Jeremy McCrea, economic uncertainty is creating a lot of volatility.

We are still under the weight of growing fears of a recession, he explains.

No one I don't know if it's going to be a small recession or a severe recession, but it's taking over people's minds.

A quote from Jeremy McCrea, Director of Research at Raymond James

When the signs point to a severe recession, there is an automatic reaction to get rid of petrol. When the recession appears less deep, crude prices increase a little.

Among the signs pointing to a recession, Richard Masson, a former oil executive and member of the School of Public Policy at the University of Calgary, cites weaker-than-expected growth in China.

< p class="StyledBodyHtmlParagraph-sc-48221190-4 hnvfyV">Russia's exports also continued at a high level. […] Iran has also returned to the market more than anticipated, he adds.

The attack on Israel by Hamas in early October also had little effect on oil supplies, underlines Richard Masson. Many have bet on an increase in oil prices. But now that all these factors point to adequate supply, all financial players have started selling their options on future oil contracts.

Faced with this dynamic, the Organization of the Petroleum Exporting Countries and its allies fueled uncertainty last week. The meeting scheduled for November 25-26 was postponed until November 30 due to disagreements over how to proceed.

Saudi Arabia has reduced its oil production and is now asking other members to participate a little more in turn. There seems to have been some discontent, says Jeremy McCrea.

Saudi Arabia cut production by a million barrels per day until the end of the year.

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Volatility in crude oil prices can lead to fluctuations at the pump. The price of gasoline, however, also depends on other factors such as the profit margins of refineries.

The specialist adds that volatility arrives at a bad moment for oil companies. Companies are planning their investment for 2024. When they cannot predict the price of oil, it is difficult to decide how much to spend.

He therefore expects very prudent budgets.

The fall in oil prices should, however, have little impact for Canadian oil companies.

Due to the lack of access to foreign markets, these Companies have always gotten a lower price for their product, notes Jeremy McCrea. They had to cut costs and find ways to be profitable at much lower prices.

Richard Masson observes that Canadian oil companies could collect more than 180 billion in revenue in 2023, the second best year for the industry.

The industry makes a lot of money, even at these prices.

A quote from Richard Masson, University of Calgary

The drop in oil prices should not harm Alberta's finances either, according to provincial minister Nate Horner. The province had already lowered its WTI forecast in the last economic update in late August and planned for a price of US$75.

You will see that Alberta shows a lot of resilience even with the fluctuations in oil prices, said the minister.

A new economic update should be released this week.

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