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Calgary — Hope for a mid-year recovery in the oil patch has been dashed.
A confluence of bearish factors – from the Greek economic crisis to the delicate state of nuclear talks with Iran to worries about slowing Chinese demand – helped knock oil prices down nearly 8 per cent on Monday, burying a slow rebound that began in March and looked to be in jeopardy last week.
Now, signs point to deeper cuts in capital spending and potentially more layoffs in the sector following a brutal first half of 2015, when the Organization of Petroleum Exporting Countries made good on a pledge to relinquish its role as the world’s protector of oil prices. Instead, the cartel seized on protecting market share.
Many Canadian oil producers that hedged commodity prices at lucrative levels last year are bracing for those forward sales to expire in the coming months, pointing to severe drops in corporate cash flow in some cases, Judith Dwarkin, chief energy economist at ITG Investment Research, said.
“They’ll lose that support. There will be credit-limit redeterminations this autumn, so they may lose some wherewithal there,” Ms. Dwarkin said. “The longer prices stay low, the harder and harder it gets for companies that are reliant on cash flow to maintain their operations.”
U.S. benchmark West Texas intermediate crude tumbled $4.40 (U.S.) to $52.53 a barrel, a day after Greek voters rejected a deal with the nation’s creditors that would have paved the way for a new bailout deal with European partners. The strength of the No vote has stoked worries about the impact on the economic health of the rest of the euro zone.
Meanwhile, Chinese stock markets have skidded, prompting the government to invoke unusual measures to prop up share prices in a massive country whose industrial expansion has backstopped global oil demand.
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