Collapse in oil prices triggers a plunge in energy sector

Photo: The Canadian Press

A trader on the floor of the New York Stock Exchange, Monday.

UPDATE: 1:55 p.m.

Canada’s main stock index closed down 10.3 per cent to its lowest level in 14 months as a collapse in oil prices triggers a plunge in the energy sector.

The S&P/TSX composite index lost 1,660.78 points to close at 14,514.24 and the capped energy index was down more than 27 per cent as Cenovus Energy Inc. was down 51.6 per cent.

In New York, the Dow Jones industrial average was down 2,2013.76 points or 7.7 per cent at 23,851.02. The S&P 500 index was down 225.81 points at 2,746.56, while the Nasdaq composite was down 624.94 points at 7,950.68.

The Canadian dollar traded for 73.54 cents US compared with an average of 74.51 cents US on Friday.

The April crude contract was down US$10.15 at US$31.13 per barrel and the April natural gas contract was up seven cents at US$1.78 per mmBTU.

The April gold contract was up US$3.30 at US$1,675.70 an ounce and the May copper contract was down five cents at US$2.51 a pound.

ORIGINAL: 6:50 a.m.

Stocks plunged 7% on Wall Street Monday, triggering a trading halt for 15 minutes.

The steep drop followed similar falls in Europe after a fight among major crude-producing countries jolted investors already on edge about the widening fallout from the outbreak of the new coronavirus.

Indexes in London and Frankfurt dropped by more than 7%. The benchmark for Italy, where the industrial and financial heartland was put in lockdown, fell 11%.

Oil prices are down about 20%, deepening a rout that began when Saudi Arabia, Russia and other producers failed to agree on cutting output. Bond yields sank to new lows.

Japan’s benchmark closed down 5.1% while Australia’s lost 7.3% and the Shanghai market in China was off 3%.

Trading in Wall Street futures was halted for this first time since the 2016 U.S. presidential election after they fell more than the daily limit of 5%. Bond yields hit new lows as investors bought them up as safe havens.

The benchmark U.S. crude price was down over 20%, the biggest daily drop since the Gulf war in 1991 to hit their lowest levels since 2016. They were down as much as 30% earlier, deepening a rout that began when Saudi Arabia, Russia and other major producers failed to agree on cutting output to prop up prices. A breakdown in their co-operation suggested they will ramp up output just as demand is sliding.

Investors usually welcome lower energy costs for businesses and consumers. But it can also hurt producers, such as oil companies. The last time crude prices fell this low, in 2015, the U.S. saw a raft of bankruptcies by smaller energy companies.

The abrupt plunge in markets added to the anxiety over the coronavirus, rattling markets and sending investors in search of safe havens like bonds.

“A blend of shocks have sent the markets into a frenzy on what may only be described as ‘Black Monday,’” said Sebastien Clements, analyst at financial payments platform OFX.

“A combination of a Russia vs. Saudi Arabia oil price war, a crash in equities, and escalations in coronavirus woes have created a killer cocktail to worsen last week’s hangover.”

In Saudi Arabia, the Riyadh stock exchange suspended trading of state-owned oil giant Saudi Aramco after its share price sank by the daily 10% limit at the opening.

Investors already were on edge about the mounting costs of the coronavirus outbreak that began in China and has disrupted world travel and trade.

Anxiety rose after Italy announced it was isolating cities and towns with some 16 million people, or more than one quarter of its population, in its industrial and financial heartland.

The International Energy Agency said in a report Monday that oil demand could fall this year for the first time since the global financial crisis in 2009.

“The oil price will stay low” in the $30s per barrel, IEA chief Fatih Birol said.

Adding to pessimism, China reported Saturday that its exports fell 17% and imports were off 4% from a year earlier in January and February after Beijing shut factories, offices and shops in the most severe anti-disease measures ever imposed.

Central banks worldwide have cut interest rates. But economists warn that while that might help to encourage consumer and corporate spending, it cannot reopen factories that are closed due to quarantines or a lack of workers and raw materials.

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