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Declining crude oil prices are taking a brutal toll on the Canadian stock market, as investors take a dim view of the country’s economic prospects in an era of cheap, plentiful energy.
The benchmark S&P/TSX composite index fell 329.50 points or 2.3 per cent, to 14,144.17, marking its worst stumble in about 18 months.
At its lowest point during the day, the index was down as much as 490 points. The Canadian dollar fell to another five-year low of 87.10 cents (U.S.), down more than a third of a cent and offering another signal that investors are growing increasingly pessimistic about all things Canada.
The latest setback certainly ramps up the drama surrounding the commodity-exposed Canadian market, but it also continues a painful downturn that has persisted for more than two weeks.
The benchmark index has fallen a total of 6.4 per cent since Nov. 21 – eroding its year-to-date gain to just 3.8 per cent as investors ponder where oil is ultimately headed and what the repercussions will be.
The price of oil has retreated to five-year lows amid evidence that the world is producing more crude than the global economy can consume.
Despite the appearance of a glut, the 12-nation Organization of Petroleum Exporting Countries announced in late November that it will maintain its current level of oil production, exacerbating worries that high-cost producers in Canada and the United States will be forced to cut production.
“In our opinion, crude prices will remain in the $70 to $80 [per barrel] range for the next two to three years,” said Scott Vali, a portfolio manager at the Canadian Imperial Bank of Commerce, in a note. “Below this level, production growth falls.”
Oil fell to $62.95 a barrel in New York, down $2.89. That brings the overall decline since the summer to about 40 per cent and dealing yet another blow to key Canadian producers, which are already mired in a bear market.
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