An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.Todd Korol/Reuters
North American markets were higher Tuesday as a strong rally in oil prices extended to a third day, with cutbacks by major producers raising hopes that crude prices have hit a bottom and some recovery may be in sight.
The S&P/TSX composite index jumped 154.8 points to 15,055.25, led by strong gains in energy and mining companies as oil climbed above $51 (U.S.).
The Canadian dollar was up 0.59 of a cent to 80.1 cents (U.S.) after charging ahead more than eight-tenths of a cent on Monday.
New York markets were also sharply higher as automakers reported double-digit U.S. sales increases for January.
The Dow Jones industrials were ahead 140.7 points to 17,501.74, the Nasdaq climbed 0.36 of a point to 4,677.05 and the S&P 500 index edged up 8.96 points to 2,029.81.
Ford Motor Co. and General Motors Co. climbed after January data showed the two led automakers with the biggest U.S. sales. GM rose 2 per cent after an 18 percent sales increase, and Ford added 1.3 per cent as it reported a 16 per cent gain in light-vehicle sales.
That helped balance other data showing orders to U.S. factories dropped for a fifth consecutive month in December, down 3.4 per cent. Also, a key category that signals business investment plans fell for a fourth straight month.
In addition, Staples Inc. and Office Depot Inc. surged on merger speculation.
Oil prices have surged 10 per cent over the last two sessions amid news of a big drop in U.S. drilling rig counts. On Tuesday, the March contract in New York was up $1.63 to $51.20 (U.S.) a barrel but prices are still down about 50 per cent from the most recent highs reached last June because of a huge oversupply of crude on world markets.
"The fact that oil is stabilizing takes some edge of the edge off the argument that the global economy is really in trouble," Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. "The markets are a little oversold after being down in January, which is also part of the strength today."
Oil companies have responded to oversupply by slashing capital spending plans for drilling and other projects and in some cases cutting production.
BP joined a growing list of such companies on Tuesday as it announced that capital expenditure in 2015 will total around $20 billion, significantly lower than its previous guidance of $24 billion to $26 billion.
It also reported a loss of $4.4 billion for the fourth quarter of 2014.
The TSX energy sector was ahead 3.25 per cent. A major gainer was Canadian Oil Sands, which jumped $1.53 or 16.2 per cent to C$10.98. Its stock has soared 60 per cent since Thursday after TD Securities raised its price target. There were also reports the company could become a takeover target by one of its partners in Syncrude Canada Ltd., which is a joint venture between seven energy companies.
The base metals sector also jumped 3.9 per cent while March copper jumped seven cents to $2.56 (U.S.) a pound.
Financials also lent key support, rising two per cent.
The gold sector was the major decliner, down 3.7 per cent as April bullion lost $18.30 to $1,258.60 (U.S.) an ounce.
In earnings news, WestJet Airlines Ltd. posted a record fourth quarter profit of C$90.7 million or 70 cents a share, in line with estimates. That was up 34 per cent from $67.8 million a year ago. Revenue was $994.4 million, up 7.3 per cent from a year ago and also in line with estimates and the carrier is also hiking its dividend by 17 per cent. WestJet shares drifted 13 cents lower to $31.77.
In New York, U.S. equities followed European stocks higher on Tuesday after Greece retreated from a plan to ask the euro area to write down debt. That eased concern that the nation would defy its creditors. Stocks briefly pared gains after a person familiar with the matter said Germany expects negotiations with Greece to drag on until the current round of bailout funding runs out.
"Bullish sentiment remains elevated," Benedict Goette, founder of asset-management firm Compass Capital AG in Zurich, said in an e-mail. "For the next one-to-two weeks, U.S. markets will be trying to find a new direction and will be prone to fake-outs – up as well as down – and this could be a very challenging trading environment."
Arch Coal Inc. added 6.8 per cent after reporting a narrower fourth-quarter loss compared to a year ago after raising output at lower-cost mines. The company also suspended its 1-cent quarterly dividend to preserve liquidity, Chief Financial Officer John T. Drexler said in a statement.
Whiting Petroleum Corp. rose 9.5 per cent to $36.17 after being raised to buy from hold by Stifel Nicolaus & Co. equity analyst Michael Scialla, who projects the shares to rise to $45 in the next 12 months.
With files from Bloomberg News