Crude oil prices suffer one of their steepest losses of the year after a report of the start of production of new Canadian barrels. File photo by Brian Kersey/UPI | License Photo
Jan. 29 (UPI) -- A post-Davos rebound in the value of the U.S. dollar, coupled with emerging supply-side strains, pushed the price of crude oil lower on Monday.
French energy company Total announced Monday the Fort Hills oil sands project in Alberta, Canada, lead by Canadian operator Suncor, started producing the first batches of oil. Over the next few months, production should reach its peak at about 194,000 barrels per day.
"With operations at Fort Hills now in continuous production, we've brought one of the best long-term growth projects in our industry into service and we're now focused on the safe and steady ramp up through 2018," Steve Williams, Suncor president and chief executive officer, said in a statement.
The new production comes at a time when traders are looking at the balance between supply and demand. A surplus, led by strong gains in North America and by the previous policy of the Organization of Petroleum Exporting Countries to defend a market share with robust production, pushed the price of oil below $30 per barrel in early 2016.
OPEC is now in year two of an effort to drain that surplus, a move that's putting a floor under the price of oil at around $50 per barrel. In October, however, OPEC economists suggested that too strong of a rally would incentivize production from North America.
Monday's announcement from Canada follows a report from Baker Hughes that North American exploration and production was responding to the January rally in crude oil prices. Reported as rig counts, Baker Hughes saw a gain of 13 in Canada and 11 in the United States.
Paul Hickin, the oil director at commodity pricing group S&P Global Platts, said rig counts definitely matter.
"The market is looking for clues of a shale rebound and the question is whether $70 is a price ceiling or whether we have more to run," he told UPI.
After a steady string of gains for most of the month, oil prices were suffering one of their worst retreats of the year. The price for Brent crude oil, the global benchmark, was down 1.14 percent as of 9:15 a.m. EST to $69.35 per barrel. West Texas Intermediate, the U.S. benchmark, was down 1 percent to $65.45 per barrel.
Some of the support was lost due to a strengthening U.S. dollar, which suffered a setback last week following comments by U.S. Treasury Secretary Steven Mnuchin, who said from the sidelines of the World Economic Forum that a weaker greenback was good for the United States. He later walked back his comments, which were seen as breaking with long-standing U.S. traditions.
In the world's leading economy, the U.S. Commerce Department reported personal incomes increased 0.4 percent in December, the same rate at which personal consumption expenditures increased.
The data followed a first estimate on fourth quarter gross domestic product in the United States, although the 2.5 percent annualized rate is below the 3.2 percent for the third quarter it represents a continuation of steady growth.