Concerns that global crude supply is growing instead of shrinking put pressure on oil prices Monday, and also helped weigh down the energy-heavy Toronto stock market.
The S&P/TSX composite index lost 107.10 points at 15,388.95, with energy, metals and industrials stocks among the biggest losers.
The Canadian dollar, which often moves in tandem with crude, was flat. The loonie added 0.02 of a U.S. cent to US75.59¢.
The February crude contract dropped US$2.03 to US$51.96 a barrel amid uncertainty over whether major production cuts by OPEC and non-OPEC members, which came into effect on Jan. 1, are helping lift oil prices by decreasing supply. The concern is that other producers, namely in the U.S., are poised to make up the difference.
"A bump in oil prices is only going to incentivize U.S. producers to bring some of their shuttered production back online," said Craig Fehr, a Canadian markets strategist with Edward Jones in St. Louis.
"This is the phenomenon that is going to keep oil prices pretty range bound for this year."
Many North American crude producers had turned off the taps after oil prices plunged sharply beginning in mid-2014. These companies couldn't continue to drill when they weren't even guaranteed to break even, let alone, make a profit.
Prior to the plunge, oil prices hovered over US$100 a barrel before dropping below US$30 barrel at the start of 2016 when the market was flooded with oversupply provided by Middle-Eastern firms and not enough worldwide demand. Analysts believe the price will hover around the US$55 to US$65 a barrel market with the help of the OPEC and non-OPEC agreements.
Late last year, members of the Organization of the Petroleum Exporting Countries, which include Saudi Arabia, agreed to decrease production by 1.2 million barrels a day for six months. Non-OPEC members including Russia also signed their own deal to scale back production by 558,000 barrels a day for the same period.
Meanwhile on Wall Street, the Dow Jones industrial average declined 76.42 points at 19,887.38 and the S&P 500 slipped 8.08 points to 2,268.90. The Nasdaq composite climbed to a record high, gaining 10.76 points at 5,531.82.
Fehr noted that in the short term, rises in the markets will be more focused on corporate earnings results and economic data to support a weeks-long rally that began after Donald Trump was elected U.S. president in early November. The Republican is set to be inaugurated on Jan. 20.
In commodities, the February gold contract rose US$11.50 to US$1,184.90 an ounce, February natural gas was down US18¢ at US$3.10 per mmBTU and March copper contracts dipped US1¢ at US$2.54 a pound.