Oil price falls below $70 US as OPEC leaves output unchanged

The Toronto stock market tumbled more than 100 pointsas energy stocks sold off and crude prices plunged to multiyear lows below $70 US a barrel after the OPEC cartel declined to cutoil production.

The S&P/TSX composite index dropped 115.97 points, 0.77 per cent, to 14,922.44.Trading volumes were lower than usual with American markets closedfor the U.S. Thanksgiving holiday.

The energy sector lost seven per cent while the January crudecontract was down $4.64 to a 4 year low of $69.05 US a barrel.

Falling oil prices pushed the Canadian dollar down 0.75 of a cent to88.25 cents US.

There had been hopes thatoil ministers with theOrganization of the Petroleum Exporting Countries who metin Vienna would cut production in order to put a floor under prices that have fallen about 30 per cent since mid-summer, when prices were elevated by geopolitical worries. Prices have steadily fallen since then because of a strengthening U.S. dollar, lower demand prospects and, particularly, a glut of oil.

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But OPEC decided Thursday to keep its production target at 30 million barrels a day, despite an oversupply of crude and plunging prices.

Major oil supplierSaudi Arabia had indicated before the meeting that it favouredthe status quo. The Saudis are the top producers within the 12-nation organization and effectively decide the cartel's policy.

Some less well-off members had favoured a cut, to reduce supplies and push prices back up. But because of booming shale production in the U.S, that would not have made a sizable dent in supply.

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OPEC still accounts for a third of the world's oil production, but the 32per cent fall in prices is straining the tenuous image of unity it strives to project.

Dirk Lever, managing director of equity research with the Calgary-based investing firm AltaCorp, said the decision was not a big surprise.

"With growth in production both in Russia and in the United States, if they cut back the other countries just fill the void," he said.

In Canada, he said, the impact could include difficulties getting pipelines approved when the perception is there's too much oil.

"Being awash in crude and it being at a low price it's hard or harder to get approval, so I think it will be an uphill battle," Lever said.

Governments deal with price drop

Finance Minister Joe Oliver says the federal government has already considered the dramatic slide in oil prices in its
fiscal forecasts.

"When we took into account the oil price decline which hadalready occurred, we made the assumption that the prices would stayat the low level for the entire period," Oliver told a mediaconference on Thursday.

Oliver said that's "a relatively conservative assumption andwe'll continue to monitor the level of prices."

Lower oil prices are starting to bite into Canadianprovinces'finances as well.

• In Newfoundland and Labrador, Premier Paul Davis has announced the government is imposing a freeze on discretionary spending and imposing an extra layer of approval on all hiring.
• In Saskatchewan, the spring budget was based on a price of oil that would average around $94US per barrel, but the province says its finances are still on track thanks tohigher potash revenue and Crown land sales.
• In Alberta, Finance MinisterRobin Campbell has said "tough decisions" will need to be made if low prices persist.Revenue from Alberta's energy sector generally accounts for about 25 per cent of the province's total revenue.

Price war?

Tariq Zahir, analyst at Tyche Capital Advisors in New York, said the slide in U.S. crude could continue below $65 a
barrel in coming weeks, a factor that may start to challenge the economics of North American shale oil production.

"I really think we will start getting into a price war,"Zahir said. "I think you would be a little crazy to try to pick
a bottom here. I expect to see a bounce but any bounce will besold into."

He added trading volumes were reasonably strong on Thursdaydespite many U.S. traders being off for the Thanksgivingholiday.

Oil analysts said the OPEC decision left the oil marketvulnerable to much bigger falls as abundant supply of high
quality, light crude oil floods world markets, much of it from shale oil in North America.

"Saudi Arabia and OPEC will have to live with a prolonged period of low prices for any dent in U.S.-shale or production
levels to happen," said Harry Tchilinguirian, senior strategist at BNP Paribas in London.