Oil prices rebound, boosting Canadian dollar, TSX
WTI contract up 4%, overtaking Brent as U.S. crude stocks fall
Oil prices rebounded from their six-year low on Wednesday after a fall in U.S. crude inventories, helping to lift both the TSX and the Canadian dollar.
West Texas Intermediate, the benchmark North American contract, was up 4.6 per cent or $1.66 to close to $37.81 US a barrel.
Brent, the main international contract, rose $1.50 to $37.64 US a barrel.
It is unusual for WTI oil to be priced higher than Brent – the last time it happened was in 2010, according to Reuters.
The rebound in oil was good news for the Canadian dollar, which bounced up four-tenths of a cent to 72.17 cents US.
A recovery in energy stocks helped buoy the TSX, which was up 202 points to close at 13,284.
Traders in North America were encouraged by a drop of crude inventories in the U.S. of 5.9 million barrels in the last week, compared with analysts' expectations for an increase of 1.1 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by two million barrels, according to the Energy Information Administration.
Also Wednesday, oilfield services company Baker Hughes Inc. said the number of rigs exploring for oil and natural gas in the U.S. declined by nine this week to 700.
"It was really good news for the oilpatch," said Colin Cieszynski, chief market strategist with CMC Markets. "Oil's been really oversold and people have been waiting for something to jump on to move it back the other way and we saw that in spades today with the positive surprise on the U.S. oil market."
But a mixed outlook for crude from the Organization of Petroleum Exporting Countries weighed on the price of Brent contracts.
In its world oil outlook, OPEC predicted a return of oil to $70 US a barrel by 2020.
But it forecast little increase in demand for 2016, which could prolong the current low prices for oil.
After OPEC failed to agree on a cap on output at its meeting earlier in December, Iraq signed a $1.4 billion deal to supply 160,000 barrels per day to Indian refiners Reliance and Indian Oil Corp.
And Iran is expected to add 500,000 barrels per day of crude exports next year increasing the competition to sell Middle Eastern oil.
The long stretch of low oil prices has the potential to decrease investment in the sector over the next five years, OPEC predicted and that could mean much tighter supply by 2020.
Cieszynski said WTI may end up capped at about $40 in the near-term because of OPEC strategies, unless demand picks up substantially.
"Into the new year, we're still running into the oversupply problem. Supply is still a mess. OPEC doesn't seem to know what they're going to do in terms of production levels," he said.