TORONTO – Plunging oil prices dragged the Toronto stock market down Monday by more than 300 points — about 2.4 per cent — as the Canadian dollar fell to its lowest levels in more than a decade.
The oil-sensitive loonie dropped nearly 0.8 of a cent from Friday’s close to end the day at an even 74 cents U.S. That’s the lowest the Canadian dollar has been against the greenback since June 2004.
The price of oil dropped $2.32 to settle at US$37.65 a barrel, a level not seen since the 2008 financial crisis roiled world markets.
The Organization of Petroleum Exporting Countries said Friday it would maintain current production levels for the next six months even as a worldwide supply glut shows no signs of easing.
Oil has dropped from a high above US$110 in July 2014 as OPEC has pumped up supply while demand from big consumers such as China has sagged.
Craig Fehr, Canadian market strategist at Edward Jones in St. Louis, said cheap oil will be a double-edged sword for Canada.
“Obviously, consumers in Canada benefit from lower gasoline prices,” he said.
“But given the slow growing economy and the fact that oil prices has squashed any investment in the energy industry, and given how prominent that industry is for the Canadian economy, that’s really slowed down growth.”
In the U.S., cheap oil has been a boon because consumer spending is a larger share of GDP and cheaper gas tends to boost what people spend elsewhere, he said.
“Across the board you’re seeing much more of a benefit to the U.S. economy and other developed economies like Europe where energy isn’t a big part of their market,” he said.
The improving prospects for the U.S. economy and the looming rate hike for the American dollar are helping drive down the loonie, Fehr said.
And while the strengthening greenback can cause pain for importers or travellers, he said, Canada’s exports look to be increasing as American buyers take advantage of their purchasing power.
“I wouldn’t expect to see a huge rebound in the loonie any time soon because there’s just a lot of forces at play,” he said.
The Toronto stock market closed down 315.94 points, or 2.37 per cent, to 13,042.83, the biggest one-day decline since a 374-point drop on Sept. 28.
The metals and mining subsector was the biggest loser on the day, down 7.6 per cent, while the energy subsector fell 5.9 per cent.
New York markets also closed in the red. The Dow Jones industrial average ended the day down 117.12 points, or 0.7 per cent, to 17,730.51, while the broader S&P 500 index fell 14.62 points, or 0.7 per cent, to end at 2,077.07. The Nasdaq declined 40.46 points, or 0.8 per cent, to end at 5,101.81.
The February gold contract fell $8.90 to settle at US$1,075.20 per ounce, while the January contract for natural gas fell 8.9 cents to US$2.067 per mmBtu.
Note to readers: This is a corrected story. A previous version said the dollar last closed below 74 cents U.S. on June 23, 2014.