The price of a barrel of Canadian oilsands crude oil fell to its lowest level ever on Wednesday, and the Toronto Stock Exchange sold off heavily as a result.

Western Canadian Select (WCS) was changing hands at one point as low as $7.63 US per barrel, down $4.60 from Tuesday's level. The U.S. benchmark known as West Texas Intermediate (WTI) also fell to below $22 a barrel, a level it has not hit since 2003.

That was bad news for shares in oil companies, many of which trade on the Toronto Stock Exchange. Selling on the TSX was so heavy that automatic circuit breakers designed to give markets a pause during times of turmoil kicked in. When the decline hit seven per cent, markets were automatically shut down for a breather.

When they reopened the selling continued, with the TSX closing down 963 points or almost eight per cent. The Dow Jones Industrial Average fared almost as bad, closing below the 20,000-point level.

The TSX was mostly dragged down by shares in oil companies, which were themselves responding to a plunge in the price of crude. Oil is being walloped by too much supply in a time of reduced demand because of the coronavirus pandemic.

After more than a year of an uneasy collaboration to limit supply and try to keep prices up, Saudi Arabia and Russia started a price war earlier this month, flooding the market with their cheap oil that kicked off a race to the bottom in terms of oil prices.

Canadian oilsands oil always trades at a discount to lighter blends, such as Brent and WTI, because it is more difficult to transport and process. So the oversupply has hit the price of WCS even more than other types of oil.

"Russia and Saudi Arabia are having this pissing match," said Canoe Financial portfolio manager Rafi Tahmazian in an interview with CBC News. "And we're just living with it."

The two oil giants are essentially staring each other down, daring the other to blink. And they're forcing higher-cost producers out of business in the process.

"They're going to try to stick it out as long as they can to create maximum damage for the rest of the oil producers out there, for sure," he said.

Oil prices across the board have lost more than half of their value in a matter of weeks, but investment bank Goldman Sachs said there's room to fall more because the coronavirus is eating into demand for oil at a time when there's too much of it to begin with.

Stock markets around the world, like this one in Frankfurt, have been whipsawed by the uncertainty surrounding the coronavirus. (Alex Kraus/Bloomberg News)

"The oil demand collapse from the spreading coronavirus looks increasingly sharp," the bank said, predicting Brent crude could go as low as $20 a barrel later this year.

High supply coupled with low demand

It's taking a hit on the demand side, too, however, as the coronavirus has taken a huge bite out of demand for energy as quarantines and shutdowns drastically reduce the need for oil.

"While the supply war continues between OPEC, Russia and others, demand expectations continue to decline with air and other travel being curtailed," said Colin Cieszynski, market strategist at SIA Wealth Management in Toronto.

Goldman Sachs predicts the global demand for oil will decline by eight million barrels a day this year. If it happens, that would be the largest annual plunge on record.

The oil swoon pushed the loonie below the 70-cent level on Wednesday, lower than it has been in years.

The stock markets' carnage comes on the heels of heavy selling for the past two weeks, which has pushed the price of both stock indexes down by about a third of their value in less than a month.

Governments around the world have rushed to bring in stimulus measures and bailouts for consumers and businesses, including $82 billion announced by the Canadian federal government as recently as Wednesday. Such measures may help the economy to withstand the impact of the coronavirus, but they will do very little to put a bottom under the price of oil, which is subject to global forces outside of Canada's control.

"This virus is shutting down the world," Tahmazian said. "Canada [has] a world of hurt ahead of it, and the U.S. has even more."