TORONTO — Word of a possible deal to freeze oil production among OPEC members sent the price of crude soaring Wednesday, and driving along with it the Toronto stock market and the Canadian dollar.
The S&P/TSX composite index climbed 173.39 points to 14,731.43, as energy, metals and materials stocks led with the most gains. The bounce in crude also helped the oil-sensitive loonie climb 0.54 of a cent to 76.28 cents US.
The November crude oil contract surged $2.38, or 5.3 per cent, to settle at US$47.05 per barrel after reports that OPEC countries were close to OK’ing a preliminary accord to limit oil production and support oil prices — despite lingering disagreements between regional rivals Saudi Arabia and Iran.
Officials from the Organization of the Petroleum Exporting Countries were meeting informally at an energy conference in Algiers, igniting weeks of hopes that the talks would lead to a potential output deal. But on the eve of the gathering, the Iranian oil minister downplayed the meeting and said that a decision would only happen at the next official OPEC meeting in November in Vienna.
Now that seems to not be the case, according to several sources, who say details of a “pre-accord” will be finalized in November — including the production limits for each member.
Some media reported that the group agreed to reduce its output to 32.5 million barrels a day, from the current 33.4 million.
Portfolio manager Craig Jerusalim questioned whether a production freeze is enough to drive up oil prices permanently.
“The volatility is definitely coming out of these headlines and it’s not really fundamental supply and demand based,” said Jerusalim, who is with CIBC Asset Management.
He noted there continues to be excess supply, and that’s why producers have been working to bring down costs to make US$50 a barrel more profitable to them than it was even a year ago.
Even though signs of a deal are positive for the oil market, it remains unclear how this will affect OPEC members and for those outside of the cartel, including Canada and the U.S., over the long-term because the deal still needs to be finalized.
“Every member of OPEC has different needs and different budgets and requirements and populations they have to satisfy,” said Jerusalim. “The cartel is as strong as it used to be. Definitely not as uniform as it used to be.”
The price of crude oil has fallen sharply since mid-2014, when it was over US$100 a barrel, dropping below US$30 at the start of this year.
Over the past couple of years, OPEC countries, led by Saudi Arabia, had been willing to let the oil price drop as a means of driving some U.S. shale oil and gas producers out of business. Shale oil and gas requires a higher price to break even.
In New York, Wall Street also saw gains as the Dow Jones industrial average jumped 110.94 points at 18,339.24 and the S&P 500 climbed 11.44 points to 2,171.37. The tech-heavy Nasdaq composite added on 12.84 points at 5,318.55.
In other commodities, December gold contract fell US$6.70 to US$1,323.70 an ounce and November natural gas contracts fell five cents at US$3 per mmBtu. December copper contracts climbed two cents at US$2.18 a pound.
— With files from The Associated Press
