Oil price decline hits Alberta crude

World oil prices continued to fall Friday, reaching four-month lows as investors reacted to fears of stronger output from Saudi Arabia and lower global economic expectations

.

Both London-traded Brent and New York-

traded West Texas Intermediate dropped, but the latter, which is the base for the price fetched by most Alberta crude, fell more

.

WTI for July delivery settled at $93.01 US a barrel, down $1.94, or two per cent, its lowest since Feb. 18, while Brent crude for August delivery slipped 81 cents to $113.21 US a barrel, the lowest settlement since May 24.

The U.S. crude’s discount to Brent widened by more than $1 to $19.90 a barrel. It was at a record $22.80 on Wednesday.

WTI is down about $20 from its 2011 peak, while Brent has fallen just $10 from its peak.

“

Part of the drop in WTI has to do with very specific infrastructure issues at Cushing, Okla.,” said Adam Sieminski, an analyst for Deutsche Bank, noting that there’s more oil arriving than pipeline capacity to take it to market on the Gulf Coast.

“

It’s important to Canada because a lot of the Canadian crude is headed toward Cushing, so some of that low price is getting backed up into Alberta.”

Peter Buchanan, a commodities economist for CIBC World Markets, said oil prices fell Friday because investors are leaving commodity markets over economic worries.

“

What we are seeing is a follow-through as some of the people who were betting on a strong global recovery are pulling back and moving out of riskier assets,” he said.

“

On the economics side, the International Monetary Fund did come out with a scaled-back forecast. Although it’s not a huge downward reduction, it is another a sign the recovery is not going to be as strong as people thought,” Buchanan said.

The IMF cut its estimate for U.S. gross domestic product to an anemic 2.5 per cent growth this year and 2.7 per cent in 2012.

Companies this week announced they would employ barges to move oil between Cushing and New Orleans and others are moving oil by railcar and trucks, but Buchanan and Sieminski agreed those methods will not generate the volume needed to draw down the glut.

The $7-billion Keystone XL pipeline proposed by TransCanada Corp. would help restore WTI, they said.

FirstEnergy Capital analyst Martin King, meanwhile, said the world supply-demand fundamentals remain tight and that’s why Brent is still relatively strong.

WTI’s transportation problems are keeping it artificially low, bad news for Alberta producers.

“We’re not participating as much on the upside or, equivalently, we’re participating more on the downside,” he said, adding heavy crude differentials to WTI have also widened and cost inflation is putting added pressure on Alberta producers.

CIBC is forecasting an average of $97 US per barrel for WTI this year, while FirstEnergy’s forecast is for $100. Deutsche Bank predicts Brent will be $117 and WTI will have a $10 to $15 discount.

Oil’s slump broke its usual inverse correlation with the American dollar, which fell against the euro Friday.

The Canadian dollar edged higher against the greenback, ending the day at $1.0202 US.