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."
In the meantime, oil prices continued to slide, taking energy stocks with it. The Dow Jones Industrial Average slipped 0.52%, weighed down by Chevron (CVX) and Exxon Mobil (XOM) . The S&P 500 was down 0.67%.
The Nasdaq tumbled 0.85% as solar stocks such as First Solar (FSLR) and SunPower (SPWR) sold off in sympathy with the energy sector, while high-momentum stocks including Netflix (NFLX) and Tesla (TSLA) dragged.
Oil exploration and drilling companies were tumbling on Monday. Transocean (RIG) fell 5.1%, EOG Resources (EOG) slid 2.9% and Occidental Petroleum (OXY) slipped 5.6%. The Energy Select Sector SPDR ETF (XLE) dropped 4%.
A selloff of energy stocks overshadowed a rally in pharmaceutical companies after Merck (MRK) said it would buy Cubist Pharmaceuticals (CBST) for $8.4 billion. Celgene (CELG) , Gilead Sciences (GILD) , Vertex Pharmaceuticals (VRTX) and Regeneron (REGN) all jumped.
Yum! Brands (YUM) fell 2.2% as Goldman Sachs analysts reaffirmed their "sell" rating, noting that the company may suffer lingering damage from supplier issues in China. McDonald's (MCD) was dragging on the Dow, down 3.6%, after the fast food giant warned of weaker-than-expected fourth-quarter results after November sales disappointed. Comparable-store sales dropped 4.6% in the U.S.
Indian tech company Infosys (INFY) was 4% lower after the families of four of its co-founders sold $1 billion worth of shares. The group holds a nearly 8% stake in the company.
Must Read: 10 Stocks Carl Icahn Loves in 2014
-- Written by Keris Alison Lahiff in New York.