Business

Oil climbs above $42 US a barrel after stocks rebound

Oil futures are soaring, encouraged by the sharp rebound in U.S. stocks yesterday and fresh signs that the country's economy is growing strongly.

Strong U.S. GDP numbers help encourage markets

Oil prices recovered Thursday after gyrating below $40 for the past four trading days. (CBC)

Oil futures are soaring today, encouraged by the sharp rebound in U.S. stocks yesterday and fresh signs that the country's economy is growing strongly.

The West Texas Intermediate crude contract rose $4.17 or 10 per cent on Thursday in late afternoon to reach $42.78 US a barrel. It was the biggest one-day gain since March 2009. WTI oil had been below $40 since last Friday.

Brent oil, the most important international contract, was up 10 per cent at $47.55 US a barrel.

The optimism is fuelled in part by the recovery in stock prices. China's main index stopped its chain of losses on Thursday and was up 5.3 per cent after North American stocks moved sharply higher on Wednesday.

European markets also advanced. By the time North American markets opened there was more good news – the U.S. economy expanded by 3.7 per cent in the second quarter, which reinforces the idea that the U.S. is re-establishing itself as an engine of global growth.

Colin Cieszynski, chief market strategist at CMT Markets, says that after oil broke through the $40 mark, it spiked higher very rapidly.

"It looks like we're getting a relief rally here. All the bears are going to the sidelines and the bulls are piling back in," he told CBC News.

Cieszynski believes Wednesday's news than U.S. inventories of oil declined have contributed to the optimism.

"I wouldn't be surprised to see it come back some time over the next week or so and test that $40 level, but for it to hold above that would be very encouraging after the last months of decline," he said.

Oil's recovery was good news for the Canadian dollar, which was trading at 75.70 cents US Thursday afternoon at the close, up half a cent. It has been at or below 75 cents for three days. 

Declining confidence

An international oversupply of oil has brought the price of WTI down 60 per cent in the past year, resulting in lower investment in the oil patch and a marked slowing of the Canadian economy.

One of the fallouts has been a decline in Canadian small business confidence, an indication that small businesses forecast more economic weakness in the second half of the year because of the energy slowdown.

The Canadian Federation of Independent Business barometer dropped again in August, giving up about two points to reach 56.7, the lowest reading this year.

The Canadian Energy Research Institute is warning Western Canada to expect reduced conventional oil investment, reduced GDP and reduced employment and taxes for the next two to three years.

It projects conventional oil production will drop by 350,000 barrels a day from 2014 levels to less than 1.1 million barrels a day by 2017.

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