Canada’s main stock index fell Thursday, dragged lower by declining energy stocks following a blockbuster $17.7-billion deal by Cenovus Energy, one Alberta’s biggest oilsands players.
The Toronto Stock Exchange’s S&P/TSX composite index dropped 78.87 points to 15,578.76, with energy and gold sectors leading decliners.
Oil stocks registered the biggest loss, shedding 2.6%, as other big names like EnCana Corp., Husky Energy and Suncor Corp. also ended in the red.
But the biggest loser in the energy group was Cenovus, which announced late Wednesday that it will buy most of the Canadian assets of U.S.-based ConocoPhillips.
The acquisition led to investors selling off shares and saw Cenovus stock drop nearly 14%, or $2.40, to end at $15.05 on the TSX. ConocoPhillips’s New York-listed shares were up nearly 9% cent.
The weakness in the oil sector came even though the May crude contract was up US84¢ at US$50.35 a barrel, climbing for a third day in a row. The Canadian dollar, which often trades in tandem with energy prices, was unchanged at US75¢.
Michael Currie, an investment adviser and vice president at TD Wealth, says there’s currently a “push and pull” between U.S. producers and the producers from the rest of the world.
On Thursday, Kuwait, a member of the Organization of the Petroleum Exporting Countries, reportedly said it was open to extending current production cuts by another six months. The group had broached the idea this past weekend.
OPEC members, including Saudi Arabia, agreed in late November to cut its production by 1.2 million barrels a day, the first reduction agreed to by the 14-member cartel since 2008.
Eleven other non-OPEC oil-producing countries pledged in December to cut an additional 558,000 barrels a day, reaching an overall reduction of 1.8 million barrels per day.
But Currie says the quotas aren’t having the desired effect, as cheaper producers, particularly in the U.S., are using the shortfall to come back online and fill in the gap. Despite this, OPEC has very little choice but to continue with an extension.
“They have a choice but they tried for a year-and-a-half of not doing the cuts and saw oil prices fall,” he said. “So now they are trying the tightening approach … but there is nothing they can do about the U.S. production.”
Currie says the price of oil needs to fall to below US$40 a barrel to disincentivize the U.S. shale producers.
Meanwhile in New York, major indices were up. The Dow Jones industrial average gained 69.17 points to 20,728.49, the S&P 500 index added 6.93 points to 2,368.06, and the Nasdaq composite index advanced 16.79 points at 5,914.34 to close at a record high.
In commodities, May natural gas contracts were down US4¢ at US$3.19 per mmBTU, the June gold contract lost US$8.80 at US$1,248 an ounce and May copper contracts dipped a penny at US$2.67 a pound.