Oil's recovery has stalled on sputtering demand, dashing hopes of a sustained rebound in energy shares and the broader economy.
Since surging past $51 (U.S.) a barrel in early June, U.S. benchmark crude has fallen 16 per cent. Some analysts are concerned that crude could dip below $40 again before reversing course.
West Texas intermediate (WTI) oil fell more than 2 per cent to settle at $43.13 a barrel on Monday, its lowest since April 25. The Toronto Stock Exchange's oil and gas subindex, which includes shares of oil producers, integrated oil companies and oil-field service providers, slid more than 3.7 per cent.
Strengthening crude prices in the spring were a function of slowly depleting supplies, as U.S. shale oil output began to decline amid a massive pullback in drilling, and as Alberta wildfires reduced oil sands output by more than a million barrels a day.
Now, with the U.S. rig count edging up and oil sands production largely back to prefire volumes, the focus has shifted to weak demand for crude.
"There are a lot of things working against the market right now," said Phil Flynn, senior market analyst at Price Futures Group in Chicago. "We've kind of peaked in the summer driving season. People keep talking about this glut of gasoline and we have a questionable economic outlook."
For the industry, crude's market moves in recent months are eerily similar to those of 2015, with strength in the early summer giving way to a sharp drop as North American refineries headed to autumn maintenance season, when demand dropped.
By January, WTI had tumbled by nearly half to a 12-year low just above $26 a barrel.
Morgan Stanley, the U.S. investment bank, warned that the widely expected rebalancing of global oil supply and demand could be delayed from estimates of late this year or early next year to the middle of 2017. It said a "refinery-driven correction" is at hand, pointing to a big buildup in U.S. gasoline stockpiles.
"With inventories above five-year highs in almost every region, [petroleum] product margins have been falling sharply. This product overhang will weigh on crude oil markets as well, just with a lag," Morgan Stanley said in a report. "As refinery margins continue to fall, refiners will look to cut back on utilization, leading to lower crude oil demand."
The global macroeconomic picture is also cloudier after the Brexit vote in Britain to leave the European Union, which showed the vulnerability of demand, Mr. Flynn said.
"And now, with concerns about China slowing down, or India being a little shaky, the uncertainty is driving this a bit lower, and now it's starting to impact the stock market," he said.
Indeed, some of Canada's bellwether energy stocks took big hits on Monday, including Canadian Natural Resources Ltd., down 4.4 per cent, Encana Corp., down 5.5 per cent, and Suncor Energy Inc., down 3.3 per cent.
A few oil patch companies have over the past few days reported second-quarter results marked by sizable losses. However, some executives have expressed optimism, noting that heavy cost-cutting over the past 18 months is paying off in efficiency gains.
Precision Drilling Corp. chief executive officer Kevin Neveu told analysts last week that "green shoots" were appearing in the market, with exploration and production companies adding a few more dollars to drilling plans. One bright spot has been natural gas prices, which have jumped owing to power demand to meet increased air-conditioning loads in major markets.
Weaker oil prices are taking their toll on Canada's commodity-influenced currency. The loonie fell 0.6 per cent to 75.6 cents (U.S.), its lowest level in more than four months.