Crude oil skidded to a 5 1/2-year low as the Organization of Petroleum Exporting Countries showed no sign it would step in to rescue prices that have dropped to levels forcing deep spending cuts throughout the oil industry.
In Canada, energy companies that have recently reduced their 2015 capital expenditure budgets by double-digit percentages will likely have to claw back spending again if prices remain in the current range for much longer.
Crude prices began the day in positive territory against a backdrop of supply disruption due to violence in Libya, but market fears resurfaced that crude is still too plentiful as the outlook for demand weakens.
U.S. benchmark West Texas Intermediate oil fell $1.12 (U.S.) to settle at $53.61 a barrel, its lowest since May, 2009. U.S. crude has lost roughly half its value since June, and some analysts see little meaningful recovery in prices until the second half of 2015.
WTI ended the day off its lows after industry data showed the number of rigs drilling for oil in the U.S. fell last week to the lowest number in eight months, but crude is still at risk of falling further, said Phil Flynn, senior energy analyst at Price Futures Group.
"Fundamentally, things aren't changing that much. Obviously the rig count gave us a little bit of a bounce off the low, but that's not really going to show up right away," Mr. Flynn said.
"In the short term, there's going to be a lot of oil produced here in the U.S. and the demand's not going to be that strong so you're still looking at a glut for the foreseeable future."
Libya extinguished fires at three of six oil-storage tanks at the country's largest oil port, helping to stabilize prices early in Monday's trading session. The fires at the Es Sider facility started Dec. 25 when Islamist militias shot rockets at the port in a second attempt to capture it, after a first attempt on Dec. 13.
The market was also supported early by calls from OPEC member Algeria for the group to reduce output, saying the income of many member states is getting squeezed.
The market could not sustain the lift, however.
"These OPEC countries are really feeling the pain, but the comments we've heard out of Saudi Arabia and United Arab Emirates are not showing any signs that they're going to stop producing. If anything, they're talking about raising production in the next couple months," Mr. Flynn said. "They really want to bury this market, whether it's the U.S. shale producers or the alternatives."
Indeed, Saudi Arabia's Oil Minister, Ali al-Naimi, told CNN a week ago that OPEC had no intention on reducing output, even if countries outside the cartel offered reductions of their own.
"If they want to cut production they are welcome – we are not going to cut, and certainly Saudi Arabia isn't going to cut," he said.
Throughout December, Canadian oil and gas producers, including companies such as Cenovus Energy Inc., MEG Energy Corp. and Whitecap Resources Ltd., reduced their 2015 budgets, some more than once, to account for sharply lower-than-expected oil prices. Some, including Bonavista Energy Corp. and Lightstream Resources Ltd. lowered their dividends, expecting cash flow to wane.
On Monday, the Toronto Stock Exchange's energy group slipped 0.3 per cent to 223.5 points. The group is up 17 per cent from its nadir in mid-December, with the market responding enthusiastically to companies' moves to protect balance sheets. But it remains at 33 per cent under its June high.
In a recent report entitled Batten Down the Hatches, Judith Dwarkin, chief energy economist with ITG Investment Research, said the oil-price rout has more room to run. If OPEC does not lower its production quotas, global crude supply could exceed demand next year by an average of 1.3 million barrels a day.
If so, international Benchmark Brent crude could average $75 or less and WTI in the high $60s, Ms. Dwarkin wrote.