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Canadian oil names getting butchered

What's behind the sell off? A familiar name has an idea

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Sep 22, 2014

by Max Fawcett

It’s been a bad day for Alberta’s oil and gas companies and the people invested in them. Just about every name is in the red, with some approaching double-digit losses. It’s not the commodity prices that’s driving this activity, either, as all of the key products are down under one per cent. So what’s going on? Jeff Rubin – yes, that Jeff Rubin – has a theory. He thinks commodity prices aren’t adequately reflecting the demand destruction going on throughout the world, and thinks oil and gas companies may be facing a future not unlike the one that’s created havoc in the coal industry. “U.S. oil consumption, by far the largest in the world, has recently fallen to 18.6 million barrels a day, down from nearly 21 million prior to the last recession. European oil demand peaked more than 20 years ago and has fallen in each of the last five years. Even China’s thirst for oil is diminishing as economic growth there shifts into a lower gear. The country’s latest industrial production numbers were the weakest since 2008. Indeed, global oil demand forecasts are being cut by nearly everyone in the business, whether it’s the International Energy Agency, the U.S. Energy Information Agency or even OPEC.”

How low could oil prices go? The former peak oil theorist, who predicted that crude would have surpassed $200 a barrel by now, thinks they could make a big move in the other direction. “If the trend towards weakening demand growth continues, there’s only one direction for oil prices to go. It’s the same direction that coal prices have already gone. Newcastle spot prices, essentially the global benchmark price for coal, have fallen from a peak of more than $140 a ton in early 2011 to less than $70 a ton….If crude prices end up mimicking their fossil fuel cousin, prices could be heading as low as $40 to $60 a barrel in the not-too-distant future.”

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