CAD and oil continue trading hand in hand towards the abyss. After yesterday’s 3 reasons for the fresh fall in oil, we did hear talks about an emergency OPEC meeting. This did little to help the price of crude or CAD.
WTI Crude Oil is nearing the psychologically challenging $30 mark and USD/CAD has already risen above 1.43, yet the battle continues.
An emergency meeting of OPEC, if summoned, could in theory result in a production cut. But consider this:
- OPEC members are far from united: each one wants the other to cut. This was seen in 2014 at its starkest form and seen now again.
- Iran and Saudi Arabia, among the biggest producers, remain at loggerheads over the recent Saudi execution and consequent burning of the embassy in Tehran.
- OPEC is only a third of global production – the impact isn’t what it used to be.
- US shale will fill any gap – the American industry is much more flexible than OPEC.
- Inventories are still extremely high.
This doesn’t mean that oil prices are necessarily far from the bottom. Eventually the tables can turn, it’s just a matter of tricky timing. So eventually, at some point:
- Low prices will trigger lower production. It’s amazing this hasn’t really happened yet.
- Low prices will trigger higher demand. Sales of pickup trucks have risen, but people are not burning gasoline like crazy.
- And maybe, OPEC and non-OPEC producing countries will reach an agreement. Yet it is hard to see the US, Russia, Saudi Arabia and Iran all find common ground, and the smaller producers are certainly unlikely to accept production cuts.
So, oil prices continue plunging and so does CAD. The fall in the loonie is not as strong as it used to be, perhaps thanks to the strong Canadian jobs report on Friday, but we still have a new low on every new day.
Here is the loonie chart. The high so far is 1.4314, but the pair quickly retreated. More digs at the bottom of the barrel are needed for a fresh rise in Dollar/CAD:
