A barrel of West Texas Intermediate was changing hands at less than $88 a barrel at one point on Thursday, a level it hasn’t traded at since early February That was before Russia’s invasion of Ukraine, which pushed oil prices to their highest level in years on fears of a wider war and sent countries scrambling to replace Russian crude. After peaking at nearly $140 a barrel in March, oil has fallen steadily since then, but Thursday’s selloff was sparked by new U.S. data showing Americans are driving less this summer than two years ago, the 2020 pandemic lockdowns. WATCHES | Why high gas prices are rethinking some summer driving plans:
Gas prices are revising summer road trips
With high gas prices across the country, some Canadians are canceling their summer road trips and staying closer to home. Rory Johnston, founder of Commodity Context, says natural gas prices are still trying to stabilize from the unprecedented surge in demand seen earlier this year. “For a large part of the summer, gas prices were going higher and higher and people … were stockpiling because they didn’t know how high they were going to go,” he said in an interview. “Now it has reversed and prices are falling very quickly.” Gasoline is one of the main uses of oil, so crude prices are falling just like at the gas pump. But oil is also falling as more economic data suggests the global economy is slowing and may enter a recession, which will reduce demand for energy. “What we’re seeing is certainly the whole oil market kind of going down because of some of these concerns,” Johnston said.
OPEC to boost production
Martin Pelletier, a portfolio manager with Wellington-Altus Private Counsel, says there are good reasons to worry about a recession, but ultimately he thinks the outlook is more likely to surprise the upside than the downside. He noted that this week, the OPEC oil cartel agreed to increase production by 100,000 barrels per day, something it would not have done if it believed the market was about to sink. “OPEC has a very good understanding of global oil markets, they are actually increasing their price and production,” he said in an interview. “But that $90 number has raised concerns about the direction of oil from here.” Johnston says the current drop in oil can be seen as good news or bad news, depending on your perspective. “The silver lining is definitely cheaper gas [but] the storm cloud on the other side of this investment is potentially lower gas prices because the economy is weakening.”