In this Feb. 26, 2011, file photo, an employee works at a refinery inside the Brega oil complex, in Brega, eastern Libya. OPEC produces one-third of the world’s oil and, in theory, at least, can affect global oil prices depending on how much oil it decides to sell.Hussein Malla/The Associated Press
The Toronto stock market extended its losses Friday as energy stocks continued to sell off in the wake of a collapse of oil prices while miners and copper prices fell heavily on Chinese economic concerns.
The S&P/TSX composite index dropped 139.7 points, or 0.94 per cent, to 14,782.75 after a 116-point slide Thursday.
The energy sector lost two per cent after prices fell to 4 1/2 year lows, barely above $69 (U.S.) on Thursday, after the OPEC oil cartel opted to leave its daily output unchanged at 30 million barrels a day, rejecting intense lobbying by some of its 12 members to cut production to put a floor under prices. Oil prices have plunged about 35 per cent from mid-summer highs because of a higher U.S. dollar, lower demand and most particularly, a glut of global supply.
On Friday, the January crude contract on the New York Mercantile Exchange was down $4.90 from Wednesday's closing price to a 4 1/2 year low of $68.79 a barrel.
And analysts say they wouldn't be surprised to see prices further depressed as Saudi Arabia, the biggest OPEC producer and one of the lowest cost oil producers, is prepared for short term pain in order to compete against U.S. producers and maintain market share.
"The Saudis have a trillion dollars of reserves, about five years worth of spending for them," observed Luciano Orengo, a portfolio manager at Manulife Asset Management, adding some U.S. producers are especially vulnerable due to high debt levels.
"What you want to do if you're a producer like the Saudis, a low cost producer that has reserves, you want to maximize the value of that and don't lose market share to new production in the U.S."
Plunging energy prices also punished the Canadian dollar, which lost three quarters of a cent Thursday. The pressure kept up Friday with the loonie losing another 0.64 of a cent to 87.61 cents (U.S.) even as Statistics Canada reported that third quarter gross domestic product ran ahead at an annualized pace of 2.8 per cent. That was much higher than the 2.1 per cent rise that economists had expected.
U.S. stocks ended mostly lower as falling crude prices weigh on the market in a holiday-shortened session.
The Standard & Poor's 500 index eased five points to close at 2,067, the Dow Jones industrial average rose less than a point to close at 17,828 and the Nasdaq edged up four points to 4,791.
Market players were focused on Thursday's decision by the OPEC oil cartel to keep crude production at 30 million barrels a day despite global oversupply. The move hit oil prices as traders anticipated supply levels at their current rates at least for a few months yet.
Benchmark U.S. oil slid 9 per cent to $66.61.
The TSX also found pressure from another major pillar – the mining sector as metal prices also retreated.
The base metals sector dropped five per cent while March copper declined 10 cents to $2.86 a pound. Copper hasn't broken below $3 since 2010. The decision by the Chinese central bank to lower interest rates got a positive reception a week ago. But since then, there have been concerns that the move isn't enough to keep Chinese growth above seven per cent.
Gold prices were heavily punished since lower oil prices will translate into lower inflation. The TSX gold sector fell 3.4 per cent while February gold lost $17.20 to $1,180.30 an ounce.
TSX gainers were led by the telco sector, up 0.9 per cent and the consumer discretionary group, up 0.8 per cent.