Oil Price Rallies From Historic Lows

Today's trading saw a lift in global equity markets, with the Dow Jones Industrial Average increasing by over 500 points and the S&P/TSX Composit closing up 2.4%. The real story, of course, was oil, which rebounded sharply, with the price of WTI closing up 20%.

Source: Bloomberg, April 22nd

The large-cap dividend paying names that we watch closely all rose slightly today, with Enbridge (up 1.9% to $40.67) the biggest winner.

Remember: there's more than one "oil price"

When we talk about the price of oil surging, those who paid attention to Monday's bizarre crash will remember that "the price of oil" is a slippery subject. West Texas Intermediate (WTI) contracts, which are typically used by North American media to mean the price of oil traded at $13 today, some $50 higher than Monday's low of -$37. 

It's important to remember that the WTI contracts we were talking about on Monday were very different than the WTI contracts we're talking about today. Today, we're trading oil for delivery in June, when traders expect that May's storage problems will have subsided.

For a better idea of how valuable oil is as a commodity, we can look to the price of Brent crude, which is the most common benchmark crude in the world. Instead of requiring delivery to one facility in Oklahoma, Brent contracts can be delivered to a variety of locations. The price of Brent crude has been more stable than the price of WTI, gaining 7% today:

Source: Bloomberg, April 22nd

The price of oil will remain low while its production levels remain high and demand levels remain low, that's simple economics. Figuring out when production will be cut or demand will recover is not simple at all.

Canadian Dollar Continues to Struggle Against USD

With a rebound in oil prices and significantly lower COVID-19 infection rates, you might expect the Canadian dollar to have rallied against the US dollar. That wasn't the case, as CAD slipped 18 cents on the US dollar:

Source: Bloomberg, April 22nd

The Canadian dollar is geared fairly strongly to the price of oil, and while oil prices are rebounding, they remain historically low. With the price of Canadian oil under $5 a barrel, there simply aren't as many US dollars flowing into Canada as there were previously. That low supply of US dollars drives up their price, and we end up where we are now.

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