NEW YORK (TheStreet) -- Benchmark indices were off session lows heading into the close, though remained lower as crude oil prices plunged and energy stocks sold off.
Crude prices hit a five-year low with West Texas Intermediate down 4% to just over $63 a barrel on continued fears the commodity will crash as supply outstrips demand. Several investment banks, including Morgan Stanley, cut oil forecasts after OPEC said it would not limit output to address the supply glut. Morgan Stanley analysts Adam Longson and Elizabeth Volynsky slashed forecasts for oil to bottom as low as $43 a barrel in 2015.
Oil companies are beginning to cut capital expenditure, including ConocoPhillips (COP) which announced a 20% reduction in capex next year, but it will take time for production levels to slow, said Christian Ledoux, senior portfolio manager for South Texas Money Management.
"That's because a lot of the wells they've drilled already are still in the ramp-up phase," he said in a call. "That means even as companies cut, there's still going to be a lag effect to when production actually slows."
Late November, OPEC agreed not to cut oil production to address oversupply, but instead said it would maintain current levels of 30 million barrels a day. In a statement, OPEC members said it would take such action "in the interest of restoring market equilibrium."
"Once prices do find a level, even if it's in the mid-$60s for a while, some kind of stabilization would actually be good for the stocks," said Hodges Funds' portfolio manager Eric Marshall via the phone. "People could recalibrate their expectations as far as what they expect near-term earnings and cash flow to do."