Crude Slides as TSX Sinks

[Jack]

Crude oil prices sank to 16-month lows and Canadian stocks plummeted the most in 21 years Monday as investors continued to bail out of resources and finance shares on fears of a global recession. Oil prices dropped almost a dollar to US$63.22 a barrel, the lowest settlement price since May 2007. Prices have fallen 31% from a year ago. Market convulsions and investor uncertainty paint a dark picture for the next 12 to 18 months as Canada starts feeling the impact of the US economic crisis, said Bruce Edgelow, with ATB Financials. "At $60 oil and a continuation of the public markets being hampered by investor interests, and on the Alberta side with the new royalty regime, depending on what kind of reserves you`re going after, 2009 does not look pretty," Edgelow said. The Canadian Association of Oilfield Drilling Companies expects the number of rigs being run next year will drop down to an average of around 40%, from about a 55% utilization this year. Rigs could be running about 130,000 operating days in 2009, about 5% off this year`s unexpectedly strong average, but considerably higher than 2007 when activity in Alberta tanked on low natural gas prices, the association said. But what markets seem to be discounting is the impact of substantially cheaper oil in industrialized nations, said analyst Martin King. "The data that`s coming in is reflecting the lagged effects of the price run-up in the summer, and we don`t really have any good hard data on what`s happening with demand . . . in reaction to the lower prices," King said. "Once we start getting more data towards the end of the year, I think the impacts won`t be as large as is generally being feared." Service companies will feel the pinch as fewer rigs are contracted, as will supporting services such as the hospitality industry, Edgelow said, forecasting a quiet winter. "The real challenge is when you look forward to where the good news might come from, we`re not that sure all the bad news has shaken out yet," he said.

(Calgary Herald 081028)