The strengthening oil price -- which jerked to a two-month high in a volatile New York Mercantile Exchange session Monday -- is infusing the Calgary oil and gas sector with confi-dence, observers say.
Crude oil for April delivery jumped 37 cents to $81.87 US a barrel in New York, helping to drive the Canadian dollar to a seven-week high of 97.31 cents US, up 27 basis points.
"I think what is probably happening is that there is some increasing confidence that the U.S. economy is turning around . . . and that in the next three to six months there will be some real restocking of both manufactured goods and basic raw materials across the U.S. economy," said Patricia Mohr, Scotiabank commodity economist in Toronto.
"Generally, I would expect oil to move up over the $85 mark in the second quarter," she added, noting she expects oil to average $83 this year and $87 in 2011.
"There are some projects that have gotten the green signal to go ahead in the Alberta oilsands and there are a lot of new tight oil plays that are moving ahead as well," said Mohr.
"I think things are moving in the right direction."
Mohr pointed out that crude oil inventories reported last week are lower in the United States than they were a year ago -- although petroleum products such as gasoline are higher -- and that is returning the commodity to a stable base.
Demand is up for oil and petroleum products, she said, in the U.S. and particularly in rapidly growing emerging markets such as China, which is driving investment in Alberta.
Calgary analyst Robert Cooper of Acumen Capital said the oil price Monday was infl uenced by factors such as a report Friday showing U.S. employers cut fewer jobs than expected in February.
"The market is saying, 'Well, it's slowing and the recovery's taking hold,' so it's one of those less-bad-is-good deals," he said.
He added rising long oil positions by speculators are also fuelling oil price hopes.
In an analysis posted on its website last week, FirstEnergy Capital Corp. analyst Martin King said there is "increasingly less reason to be negative on crude oil prices" due to the strengthening fundamentals.
"In other words, much of the downside price risk has been eliminated from the global market and upside risks are starting to creep in," he wrote.
He added that crude oil stocks are up, but still well inside their historic range.
On Monday, oil and gas stocks ended the day mostly flat, despite the oil price rise. Natural gas futures fell to a three-month low of $4.531 US per million British thermal units on the NYMEX.
The S&P/TSX capped energy index was down slightly -- although still up almost 50 per cent in the past 12 months -- as oil-heavy Cenovus Energy rose 0.63 per cent and oilsands producer Suncor Energy was up 0.38 per cent.
There was more action on the negative side, with Advantage Oil & Gas down almost three per cent and an assortment of names falling more than one per cent, including Progress Energy, Savanna Energy Services, Trinidad Drilling, Paramount Energy Trust and PetroBakken Energy.
While crude oil futures reached an eight-week high above $82 a barrel, they also traded as low as $80.75 a barrel Monday. Brent crude settled at $80.47 US, up 58 cents after hitting $80.92, also the highest since Jan. 11.
"People are doing backflips over the jobs numbers. They were nice, but we're still losing jobs so I'm a bit cautious on my euphoria," said Dan Flynn, analyst at PFGBest Research in Chicago.
A private research group reported Monday that the U.S. job market continued to improve in February for the sixth consecutive month.
Sentiment about the global economy improved, with fears about debt-stricken Greece subsiding.
Money managers extended their net long crude oil futures positions on the NYMEX in the week to March 2, the U.S. Commodity Futures Trading Commission said Friday.
Also supportive was news that China will build two strategic oil reserve bases, a development likely to underpin demand in the world's second-largest consumer.
With global demand expected to revive in 2010, the Organization of Petroleum Exporting Countries looks set to keep its production target unchanged when it meets on March 17, as it has for more than a year.
Source: Vancouver Sun