Toronto stock index dips as oil falls below US$50 a barrel amid OPEC deal

TORONTO – The price of oil fell below the US$50 mark Thursday as investors expressed disappointment over OPEC’s decision to only extend production cuts by another nine months.

The July crude contract plunged $2.46 at US$48.90 per barrel, marking its biggest decline in more than two months.

Oil prices have rallied in the last several weeks on expectations of an extension, but some had been hoping for deeper and longer cuts from the 14-member OPEC cartel and 10 other countries led by Russia.

The new agreement means that the reductions of 1.8 million barrels a day agreed on last November will stay in place until March 2018.

Chief market analyst Colin Cieszynski of CMC Markets Canada says investors had already priced in the likelihood that there would be an extension for at least six months, but others had a “pie in the sky” notion that the group might agree to a 12-month extension.

When that didn’t materialize Thursday, it resulted in some profit taking with the price of oil, he said.

OPEC and non-OPEC members are facing stiff competition from U.S. shale producers, who have returned to the market since crude prices have risen due to the cuts. Many are determined to resume operations if crude prices go even higher.

“That’s why we didn’t see them cut any further really, because if they cut more it would just get replaced by U.S. production and they don’t want that,” Cieszynski said.

A price of US$50 a barrel is still less than half the commodity’s level from early 2014, though above the low of below US$30 in early 2015.

The weakness in crude weighed on the S&P/TSX composite index, which fell 8.76 points to 15,410.73.

Losses from the energy sector were partially offset by gains in financials stocks, as three of the county’s largest banks — TD Bank (TSX:TD), Royal Bank (TSX:RY) and CIBC (TSX:CM) — reported strong quarterly results.

The Canadian dollar was up 0.04 of a U.S. cent to an average price of 74.33 cents US.

New York indices gained for a sixth straight sessions as the Dow Jones industrial average added 70.53 points to 21,082.95. The S&P 500 index advanced 10.68 points to 2,415.07 and the Nasdaq composite index gained 42.24 points at 6,205.26 — both hitting record highs.

In other commodities, the June gold contract gained $3.30 to US$1,256.40 an ounce, the July copper contract was up a penny at US$2.60 a pound, and July natural gas contract was down three cents at US$3.28 per mmBTU.

— With files from The Associated Press

Follow @LindaNguyenTO on Twitter.