TORONTO – The price of oil fell Tuesday to levels not seen in nearly 13 years, dragging down the Toronto Stock Exchange by two per cent as investors grow increasingly concerned there is too much crude on the markets.
The S&P/TSX composite index dropped 252.75 points to close at 12,282.65, capping off a third consecutive session of losses. The largest sector declines were seen in energy, metals and mining and financials.
The downturn accompanied yet another big plummet in oil prices as the March contract for North American benchmark crude fell $1.75 to US$27.94 a barrel a drop of nearly six per cent.
The last time oil depreciated to such levels was in September 2003.
The loss comes after the International Energy Agency reported that crude will remain under pressure this year as supply continues to outpace demand by as much as two million barrels a day in the first quarter. Oil prices have collapsed more than 70 per cent since mid-2014.
“There is just too much supply, too many players in the game producing (oil),” said Kash Pashootan, a portfolio manager at First Avenue Advisory.
“We should not be surprised to see oil continue to go down until we see supply erode or decline and that hasn’t happened yet.”
The oversupply issue will likely not be resolved until there are closures in the West, where crude is more expensive to produce than Saudi Arabia, said Pashootan, adding that even when the price stabilizes, investors should be wary of parking their money with oil companies.
“We’ve had some very good years in the oil industry. Many of them have strong balances, lots of cash, and many had hedges in place. They were well-positioned to take on (this) environment,” he said.
“The challenge is, no one anticipated the declines would a) be this deep, and b) last as long as they have.”
A rare bright spot was the Canadian dollar, which closed 0.28 of a U.S. cent higher at 72.05 cents US.
The loonie is finding some sheen from the weakening greenback, which has been pulling back now that investors believe the Federal Reserve is set to take a more dovish approach to interest rate hikes.
“Originally, the U.S. dollar had rallied considerably pricing in these rate hikes,” said Pashootan.
“Raising rates tends to strengthen currency, but now we see the Fed has backed off and take a more neutral ‘Wait and see’ approach and we see the U.S. dollar sell off to reflect that.”
In New York, indexes bounced back from earlier lows but still ended in the red as traders looked ahead to the start of two days of Congress testimony by Federal Reserve chairwoman Janet Yellen.
The Dow Jones industrial average pulled back 12.67 points to 16,014.38, while the broader S&P 500 lost 1.23 points to 1,852.21. The Nasdaq composite index dipped 14.99 points to 4,268.76.
On the commodity markets, the April gold contract rose 70 cents to US$1.198.60 a troy ounce, copper shed five cents to US$2.04 a pound and natural gas fell four cents to US$2.10 per mmBtu.