Oil prices drop, but relief likely temporary
The slumping price of crude oil dragged Toronto stocks down on Monday.
The price for oil — and related commodities, like natural gas — fell on the New York Mercantile Exchange because of easing Mideast tensions and a stronger U.S. dollar.
Light, sweet crude for August delivery closed down $3.92 US a barrel at $141.37, after dropping almost $6.
The drop pulled down the TSX composite index by more than 300 points in early trading, led by the heavily weighted energy companies. But by the final bell, the TSX trimmed the loss to 232.77 points. The close at 13,777.6 was a 1.7 per cent drop from Friday.
The energy sub-index was off more than three per cent. The weakness was widespread; every sub-index but one was down.
Oil hit a record intraday high of $145.85 on Thursday as traders worried that Israel would attack Iran to forestall Iran's effort to develop nuclear weapons.
But tension over Iran has eased, "and this is a positive development," John Vautrain, an analyst with Purvin & Gertz in Singapore, said Monday.
Looking beyond the immediate oil price drop, some analysts think the underlying trend is still toward higher prices.
CIBC World Markets chief economist Jeff Rubin repeated his forecast Monday, predicting that oil prices will average $150 a barrel this year and rise to $200 in 2010.
"Prices could approach those levels sooner, if the present Gulf of Mexico hurricane season hits exposed production heavily," he said.
Some international experts are predicting that rising demand from China and India will keep prices moving up, even if world economic growth slows.
Chakib Khelil, president of the Organization of Petroleum Exporting Countries, made that point over the weekend.
With files from the Associated Press
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