The threaded end of one of hundreds of drill pipes is shown in front of the Baytex Energy Ltd.'s Pembina oil rig near Pigeon Lake, Alta., on Feb. 17.Norm Betts/Bloomberg
Canadian energy stocks tumbled to an 11-year low on Wednesday after a report showing an unexpectedly large buildup in U.S. crude inventories triggered the latest drop in oil prices.
Baytex Energy Corp. sank 15 per cent, Paramount Resources Ltd. dropped 12 per cent, Penn West Petroleum Ltd. and Crescent Point Energy Corp. dropped more than 7 per cent, and numerous other producers' shares sank more than 5 per cent.
The S&P/TSX capped energy index fell more than 4 per cent to its lowest since 2004, with U.S. benchmark West Texas Intermediate crude down $1.82 (U.S.) to $40.80 a barrel.
Crude prices were hit after the U.S. Energy Information Administration reported that inventories in the United States rose by 2.6-million barrels last week, adding to a glut that has led to a more than halving of prices in the past year. Inventories remain at seasonal levels not seen in eight decades.
Some analysts suggested that crude could retrace the lows of the 2008-2009 financial crisis, adding pain for exploration and production companies dealing with dwindling cash flows and increasingly hefty debt obligations as a result.
Citigroup predicted that a fall to $32.40 a barrel, the 2008 low, is a "conceivable reality." The bank said that should trigger production to get shut off, but cautioned that it can be costly, especially for Canadian oil sands producers. They have been hit with a double whammy – falling WTI prices and a deep discount for their heavy crude.