Oil prices appear poised for a deeper fall as signs grow that
more than anyone expected.
It is estimated that oil reserves currently floating in tankers around the world's oceans amount to 1 billion barrels. The last time there was such a high was during the pandemic, when a price war between Saudi Arabia and Russia sent Brent crude prices soaring to $30 a barrel, Capital Economics said.
“This means an oil glut is on the horizon,” said Hamad Hussein, climate and commodities economist at Capital.
Last week
warned that the oil glut would be larger than forecast and said the excess was starting to accumulate on ocean tankers. It forecasts global oil supply will exceed demand by nearly 4 million barrels a day in 2026, the largest annual surplus on record.
“Looking ahead, as significant volumes of crude oil move ashore onshore to major oil hubs, crude oil inventories look set to rise,” the IEA said.
The surplus was driven by falling demand and increased supply after OPEC+ reversed years of production cuts in a matter of months.
The group of oil-producing countries has increased production by more than 1.5 million barrels per day since April, Hussein said. Oil exports from Saudi Arabia alone rose 10 percent in September.
The oversupply in recent months has been masked by China's emergency stockpiles, but analysts question how long it will last and how much the country will be able to absorb.
“Beijing's accumulation trend cannot last forever,” said Rory Johnston, an oil market analyst in Canada and founder of Commodity Context. More broadly, China's oil demand has fallen sharply since it became the world's leader in 2023.
West Texas Intermediate Prices
have fallen to below $60 in recent months (it was $57 today), down from a $70 to $80 range in 2023-24 and a high of $120 in 2022.
But Capital Economics predicts the price could fall to US$46 by the end of next year as the full effect of OPEC+ production increases hits the market.
“This decline is driven by the simplest economic concept: there is too much supply relative to how much the world consumes,” Johnston said.
Falling prices will eventually correct market imbalances, either by increasing demand or, more likely, by reducing global producers, he said.
U.S. shale oil producers will likely be the first to blink, he said.
It only costs $60 to drill a new well, and projects have already been canceled because they are not profitable.
Canadian
you can get by with less, but it will still be tight. Alberta's energy regulator estimates the sustainable oil price to be between $50 and $78 per barrel.
Johnston said the decline in oil prices over the next year or so would likely be temporary, an “echo” of the man-made tensions of 2023 and 2024.
Only once “a new market equilibrium has been established will we begin to get a clearer picture of what the end of the decade – and perhaps the end of oil demand growth itself – will look like for the global oil industry,” he said.
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The government in Canada is not small, but it is not the largest either, as an International Monetary Fund comparison shows. Canadian government spending as a share of gross domestic product exceeds the average for developed economies, said National Bank of Canada economist Warren Lovely.
But that is lower than in parts of Western Europe, where government spending may not be as resilient due to demographic pressures and stretched balance sheets.
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- Earnings: PrairieSky Royal Ltd., Steel Dynamics Inc.
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Retired at 52, with no corporate pension and less than $250,000 in RRSP, Ryan turned to FP Answers for help. Our experts say there is hope, but Ryan must act strategically to weather unemployment and prepare to catch up on his retirement savings.
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Today's Posthaste was written by Pamela Haven with additional reporting by staff from the Financial Post, The Canadian Press and Bloomberg.
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