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A further sell-off in energy stocks sent the Toronto stock market tumbling Wednesday into correction territory, hitting its lowest levels since February. On a percentage basis, it was the TSX's biggest single-day drop in about 18 months.
The S&P/TSX composite index tumbled 342 points, or 2.4 per cent, to 13,852.95, led by a drop of 5.5 per cent in the energy group after the OPEC cartel cut its forecast for 2015 world demand for its oil. It also said supplies from non-OPEC countries will rise more than forecast next year.
The TSX is now down 12 per cent from its 2014 highs racked up in mid-summer and now is a bare 230 points or 1.7 per cent above where it started the year.
A drop of 10 per cent or more from recent highs is considered a correction.
Damage was widespread across Toronto market sectors as investors try to gauge how a drop in oil prices of around 40 per cent since mid-summer will impact on the Canadian economy.
"I think it's basically a sell-Canada mentality," said Ian Nakamoto, director of research at 3MACS. "Whatever the rate of growth that was forecast, say two months ago, is going to be revised down."
Brent crude settled down $2.60, or 3.9 per cent, at $64.24 a barrel after plumbing $63.56, its lowest since July 2009. U.S. crude closed down $2.88, or 4.5 per cent, at $60.94, having fallen to a near 5-1/2 year low of $60.43.
Slumping energy stocks also sent New York indexes deep into the red. The S&P 500 ended down 33 points, or 1.6 per cent, at 2,026; the Dow Jones industrial average was down 268 points, or 1.5 per cent, at 17,533. The Canadian dollar, meanwhile, shed 0.41 of a cent to a 5 1/2 year low of 87 cents US.
OPEC forecast that demand for its oil would drop to 28.9 million barrels a day next year, compared with 29.4 million barrels a day in 2014, the weakest amount in 12 years. The cut comes amid lower demand and rising supplies, especially from the United States.
It also followed the decision by OPEC last month to leave production levels unchanged, leaving the markets to sort out a huge imbalance between supply and demand. On Wednesday, the January crude contract on the New York Mercantile Exchange dropped $3.20 to US$60.62 a barrel. The TSX energy sector, which makes up 23 per cent of the TSX, has plunged more than 25 per cent so far this year.
Meanwhile, Iran's president, Hassan Rouhani, says the sharp fall in oil prices is the result of "treachery," in an apparent reference to regional rival Saudi Arabia, which opposed production cuts to lift prices.
"Oil is lower on the reduced demand outlook and it's not a surprise to see the rest of the market, at least in sympathy, going down on that," Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. "Without any news to prompt the market to move higher today, it puts the onus back on the bulls to see how much conviction they have in buying stocks."
The TSX base metals sector lost 3.4 per cent as March copper gave back most of Tuesday's four-cent gain, down three cents to US$2.90 a pound.
Other major losers included financials, down 1.75 per cent, and industrials, which fell 2.75 per cent.
The gold sector faded 2.4 per cent as February bullion moved down $2.60 to US$1,229.40 an ounce after traders looking for a safe haven had pushed gold up US$37 an ounce on Tuesday.
With files from Bloomberg