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Canadian Stocks Fell As Oil Price Hit $28

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January 19
1:58 AM 2016

Canadian stocks market dropped as oil price continues to plunge. Meanwhile, Suncor Energy and Canadian Oil Sands (COS), two big Canadian oil companies agreed on a merge deal as Suncor Energy will acquire Canadian Oil Sands.

Stocks market in Canada relies heavily on energy and resource sectors, such as oil and and mining. Therefore a plunge in oil price will affect the country's stock market. Bloomberg reported that Canada's index, the Standard & Poor's/TSX Composite Index dropped 1.1% to 11,942.17 on Monday's trading. The plunge followed last week's 2.1% drop, which recorded as one of the worst week in history.

Monday's tumble followed U.S. benchmark oil fell to $28.94 in electronic trading. Oil dipped to more of its lowest level as Iran began efforts to boost production after international sanctions were lifted. This adds more supplies to already saturated oil market, which may continue to a more steep price drop.

In his comment regarding a drop of oil price to $28, Elvis Picardo, strategist at Global Securities in Vancouver told Reuters, "If you had a solid, sharp bounce back above $30 that might have done something for sentiment, but as it stands it's really hard for the index to get much traction."

On Monday's end of trading session, Toronto Stock Exchange's S&P/TSX composite index ended down 131.29 points, or 1.09%, at 11,942.17. Picardo said that, "Negative sentiment is so overwhelming, it's not really surprising to see the TSX trade down on a day like this."

Among the energy companies that face the decline, Kelt Exploration Ltd. and Penn West Petroleum Ltd. are the worst. Both energy companies fell more than 6.5%. Only Canadian Oil Sands upped 11% to C$8.27 ($5.69) after reaching an agreement for its acquisition by Suncor Energy Inc. However Suncor Energy Inc dropped 4.6% to C$29.77 ($20.48) .

On Monday, Canadian Oil Sands and Suncor Energy released a joint statement regarding the deal. Toronto Star reported Don Lowry, Canadian Oil Sands CEO said, "Since Suncor made its initial offer, our board has remained steadfast in our commitment to maximize value for all shareholders. This agreement fulfills that commitment, providing our shareholders with a higher exchange ratio for their shares despite a 37 per cent decline in spot oil prices."

While his counterpart Steve Williams, CEO of Suncor Energy said, "We are pleased to have the support of the COS board of directors and shareholders, including Seymour Schulich, and have been advised of their intent to tender their shares." Williams also added, "Together, we're bringing this full, fair and final offer to COS shareholders and we encourage everyone to tender their shares."

The successful deal with C$6.6 billion ($4.5 billion) total transaction value between Suncor Energy and Canadian Oil Sands will merge those two oil Calgary-based companies. However, Canada's energy companies still have to face the oil crisis which affected their stock prices, resulting a drop in Canada's stock market.

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