IN THE NEWS / Oil, natural gas prices tumble
Crude oil dips below $11 US
Stephen Ewart, Calgary Herald
The price of crude oil fell below $11 US a barrel for the first time since 1986 on Monday as speculation mounted about single-digit prices.
Weighed down by OPEC's perceived inaction on a worldwide supply glut, the price of near-month crude hit $10.83 on the New York Mercantile Exchange but it climbed back to close down 64 cents at $11.22.
It was the first day of oil trading after the U.S. Thanksgiving holiday weekend and last week's meeting of the Organization of Petroleum Exporting Countries where members did not agree to a widely anticipated extension to current production cuts.
Oil companies based in Calgary have reined in spending with the drop in prices and that will continue through the first quarter of 1999, traditionally the busiest and biggest expenditure period in Canada, said Rick Roberge, a Calgary-based industry analyst at PriceWaterhouseCoopers.
"You're going to see companies monitor spending monthly. . . and there are going to be more and more cuts if prices don't recover," he said.
The Canadian oilpatch has taken a one-two punch from commodity prices as natural gas declined about 25 per cent in recent days and the industry's hope for a long, cold winter fade as warmer-than-normal air envelopes much of the continent.
The Alberta spot price for gas has fallen from $2.84 per thousand cubic feet to $2.24.
"The mood is changing," said Peter Linder, an oil analyst at CIBC Wood Gundy in Calgary. "The gas price is making people a lot more nervous."
Gas production has been seen as a saviour for energy companies facing oil prices that are about 40 per cent lower than this time last year.
Linder called the North American gas woes a short-term situation with the longer-term supply-demand still positive.
The same can't be said for crude oil.
"There is no momentum on the upward side," said Roberge. "There's no demand growth in sight and on supply we're left to rely on the politics of OPEC."
Traders certainly blamed OPEC members for Monday's freefall.
Last week, its members abandoned the much-anticipated plan that they would extend current oil production cuts to the end of 1999. Now those cutbacks will expire in mid-1999, unless OPEC decides differently at its March meeting.
Saudi Arabia and Iran, OPEC's two biggest members, reportedly refused to make more cuts, though each wanted the other to pump less.
Kuwaiti Oil Minister Sheikh Saud al-Sabah said Saturday that he feared prices could plunge to the range of $5 to $7 a barrel.
"There's currently no sign of support underneath this market," said Jim Ritterbusch, an oil trader for Chicago-based Sweeney Oil.
It was the first time NYMEX crude traded below $11 a barrel since July 27, 1986, when it slid to $10.65 in the middle of a price war among OPEC members.
Linder predicts more mergers as belt-tightening continues.
Last week, Exxon Corp. announced it was in talks with Mobil Corp. to create the world's biggest publicly traded oil company. An Exxon-Mobil deal would follow British Petroleum Co.'s agreement in August to acquire Amoco Corp., the fifth-largest U.S. oil company.
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