Canadian stocks finished with a small gain on Thursday, a day after a surprising deal from OPEC nations to cut oil production bred optimism that crude prices may soon march steadily higher.
The TSX ended higher by 23.12 points at 14,754.55. On Wednesday, Toronto’s benchmark stock index gained 173 points after word broke that the oil cartel had agreed to cut its oil output by roughly a million barrels per day.
Oil prices gained 78 cents to close at $47.83, a day after crude prices rallied more than six per cent late in the day. The loonie, which is heavily dependent on oil, lost 0.23 a cent to 76.05 cents US, but that came after a gain of two-thirds of a cent on Wednesday.
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After trading above $110 a barrel in the fall of 2014, oil prices plummeted to as low as $26 US a barrel earlier this year because of excess supply. The cartel doesn’t control as much of the market as it used to, but collectively can still impact supply if the 12 members work together to turn off the taps.
The OPEC deal is rather flimsy on details, but has nonetheless sparked optimism that the notoriously fractious cartel may finally be willing to work together for their own common good.
“The cuts themselves in an absolute sense are not that large,” Martin King of First Energy Capital in Calgary said in an interview, adding that more will be know between now and the next OPEC meeting in November. “There’s a lot they have to go through yet,” he said. “Things will calm down and the big questions will be asked.”
Chief among them: can it actually stick.
“This proposal has more holes in it than block of Swiss cheese,” Scotiabank economist Derek Holt said Thursday. “OPEC’s deal may be a sign of greater things to come for producers … in future but for now should be treated with great skepticism in my opinion.”
If OPEC sticks to its guns, it should be enough to push oil over the $50 US per barrel level, and keep it there. That’s good news for OPEC, but it’s also good news for North American oil producers, many of who are losing money on every barrel at current prices, and are just trying to survive long enough for a rebound to come.
U.S. oil production is currently at roughly 8.5 million barrels a day, down by about a million barrels from last summer, data from the U.S. Energy Information Administration shows. But if prices stay above $50 US, U.S. activity could pick up again.
“”This gives U.S. producers more confidence,” said James West, partner at the investment firm Evercore ISI in New York. “They may become a touch more aggressive than they had planned to be.”
Ann-Louise Hittle at Wood Maxkenzie agrees with that assessment, saying that if prices can even just remain steady “it would lead to an increase in the rig count … and an increase in production.”
While higher oil prices contributed some lift to the TSX, U.S. stocks suffered as worries grew about Deutsche Bank, Germany’s biggest lender. The bank’s stock plunged seven per cent in heavy trading.
The Dow Jones industrial average fell 195.79 points to 18,143.45, while the Standard-and-Poor’s 500 index shed 20.24 points to 2,151,13.
Article source: http://www.cbc.ca/news/business/opec-oil-markets-1.3783850?cmp=rss