Oil drops amid signs U.S. drillers ready to turn on the taps
Oil dropped sharply Tuesday morning, after reports showing U.S. drillers may be ready to turn on the taps again as West Texas Intermediate crude hovers around $60 US a barrel.
That knocked back both stock markets and the Canadian dollar, which sank to 80.44 cents US at the close, well off its highs above 83 cents two weeks ago.
West Texas Intermediate, the most commonly traded North American crude contract, was down $1.46 at $58.25 US a barrel. That's a drop of 2.4 per cent today.
It was the first day of trading after the U.S. Memorial Day holiday and traders were reacting to a report Friday from Baker Hughes showing that the oil-rig count fell by just one.
Goldman Sachs analysts say drillers are starting to change their behavior as WTI contracts approach the $60 level. WTI remained above $60 for much of last week.
Oil glut persists
They already have cut costs and are returning to horizontal drilling, the analysts said.
"We believe that should West Texas Intermediate crude oil prices remain near $60/barrel, US producers will ramp up activity given improved returns with costs down by at least 20 per cent," Goldman said.
Brent crude dropped $1.62 to $63.90 US in afternoon trading and Western Canada Select, a Canadian contract, was down $1.87 to $48.53 US a barrel.
The price of oil has dropped from $107 US a barrel last June because of a global glut of supply. Even if U.S. drillers do not produce more, OPEC is already increasing its output.
The Canadian dollar was down three-quarters of a cent on the day as the Bank of Canada prepares to make an interest rate announcement on Wednesday.
On the Toronto stock exchange the energy, material and financial sectors were all lower. The S&P/TSX composite index fell 140 points to 15,047.
Hanging over the market was the debt situation in Greece, which could miss a payment to the IMF next week unless it meets bailout terms.
There was also gloomy news from the Organization for Economic Cooperation and Development said, who said s the recovery from the financial crisis remained weak and uneven in developed countries.
The OECD said the gross domestic products of its 34 members was just 0.3 per cent higher in the first three months of 2015 as the U.S. headed into a first quarter slowdown.
