NP j.oil - check this out
Oil prices surged above the
$30 US level Monday for
the first time since January
1991 as indications that
Iraq is to lower its exports
added to continued worries
about inventory levels.
The price of benchmark
West Texas Intermediate
crude oil closed up 80
cents at $30.08 a barrel on
the New York Mercantile
Exchange, the highest level
since the Gulf War.
Analysts said the price rise
is a result of the tight
supply situation in the U.S.
where inventories are at
23-year lows.
"It's the tightest supply and
demand balance that we've
seen in many years," said
Henry Cohen, an oil and gas analyst with Credit Suisse First Boston in
Toronto.
Cohen also said if OPEC continues the existing production cuts through the
summer months, it will ensure the price will stay between $25 and $30 for
the rest of the year.
While the high oil price is boosting cash flows, it isn't leading to increased
investor interest in the oilpatch.
Greg Stringham, vice-president of the Canadian Association of Petroleum
Producers in Calgary, said the lack of new investors is hurting the smaller
companies that have finished paying down debt and want to expand their
capital expenditure programs.
"Typically, the oil and gas companies will reinvest $1.50 for every dollar
generated from cash flow, with the extra 50 cents coming from the equity
market. But without the equity market, it's hard to get that level of
reinvestment," said Stringham.
The industry will be watching closely when the members of the Organization
of Petroleum Exporting Countries meet in March to see whether production
cuts will continue at current levels.
OPEC needs to figure out how to gradually return the oil price to the more
sustainable $25 level, said Duncan Mathieson, an analyst with Scotia
Capital Markets in Toronto.
As the oil price soared, so did oil stocks, with Toronto Stock Exchange's oil
and gas producers index gaining 239.76 points to close at 4913.05 while the
broader oil and gas index rose 226.57 points and closed at 5835.36. |
