Oil slumps to biggest one-day drop in 9 months

The loonie fell to its lowest level of the year, oil prices plunged more than five per cent and Canada's main stock index shed more than 100 points Wednesday in what shaped up to be a disappointing day on the markets.

At the Toronto Stock Exchange, the S&P/TSX composite index pulled back 111.80 points at 15,496.98, with energy, industrials and financials incurring the biggest losses. It's the second day of declines for the commodity-heavy market.

In currencies, the Canadian dollar fell 0.43 of a cent at 74.11 cents US, driven down by lower oil prices and a strengthening greenback.

Growth in U.S. oil reserves

The April crude contract lost $2.86 to settle at $50.28 US a barrel, its largest one-day drop in nine months.

The slump came after the U.S. Department of Energy reported that oil reserves grew by eight million barrels last week, far more than analysts anticipated.

"It is increasingly looking like U.S. production is recovering faster than expected," said senior portfolio manager Steve Belisle, who is also a managing director at Manulife Asset Management.

"They're drilling like never before and that is bringing production back faster than expected."

The stockpile figures come a day after Saudi Arabia's energy minister said OPEC production cuts are working to bolster crude prices but it hasn't decided yet whether it wants to extend the cutbacks beyond this summer.

On Tuesday, Khalid Al-Falih told an energy conference that he is watching U.S. producers closely, acknowledging that America has offset OPEC's cuts by pumping oil from shale formations.

• OPEC says there is room for the oilsands in world market

Last November, the 14-member OPEC agreed to a deal to decrease production by 1.2 million barrels a day starting in January for six months. Other non-OPEC members including Russia and 10 other nations also agreed to scale back production by 558,000 barrels a day for the same period.

The move has helped lift prices, but analysts have been worried that the gains were temporary because other producers can pick up the slack.

Belisle said it was anticipated that it would take a while for U.S. producers to start up production again after shutting down when prices declined, but that has not been the case.

"Production is going through the roof," he said. "They didn't need that much investment to jump-start production as before. That's what has been surprising to the oil market in general."

In New York, the Dow Jones industrial average lost 69.03 points to 20,855.73 and the S&P 500 index fell 5.41 points to 2,362.98. The Nasdaq composite index gained 3.62 points to 5,5837.55.

In other commodities, April natural gas contracts were up eight cents at $2.90 US per mmBTU, April gold was down $6.70 at $1,209.40 US an ounce and May copper lost two cents to $2.60 US a pound.