The S&P/TSX composite index fell 39.22 points to 14,731.50 as the TSX energy sector dropped 0.55 per cent and oil prices declined for a fourth day with the April contract down $2.21 to US$44.84.
Oil prices dropped Friday after the International Energy Agency said U.S. oil production was up 115,000 barrels a day in February.
The IEA warned that "behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly."
"The stats have been pretty disappointing in terms of the builds in inventory, people are speculating now that the U.S. can't continue to build inventories because there's no place to put the inventories," said John Stephenson, president and CEO of Stephenson & Co. Capital Management.
"So I think we're heading towards the low 40s, maybe even high 30s before this is all said and done."
The drop in oil came as the Canadian dollar fell 0.53 of a U.S. cent to 78.19 cents after falling below the 78-cent level during the morning for the first time since March 2009.
The move followed a report by Statistics Canada that the economy shed 1,000 jobs during the month and the national unemployment rate rose 0.2 of a point to 6.8 per cent.
New York markets also tumbled as traders also looked to the U.S. Federal Reserve's meeting on interest rates next week.
The Dow Jones industrials dropped 145.91 points to 17,749.31, the Nasdaq was down 21.53 points to 4,871.76 and the S&P 500 index shed 12.55 points to 2,053.4.
There has been much talk about when the Fed will start to hike interest rates from near zero, where they have been since the 2008 financial collapse. A strong U.S. jobs report a week ago raised speculation the Fed could move earlier than expected to raise rates, perhaps as early as June. But a weak retail sales report Thursday raised doubts about that timetable.
Elsewhere on the TSX, the base metals sector retreated one per cent while May copper was unchanged at US$2.66 a pound.
The TSX closed well off the worst levels of the session as the gold sector turned positive, rising almost one per cent as April bullion was ahead 50 cents to US$1,152.40 an ounce.
The consumer staples sector dropped 0.45 per cent. But shares in convenience store chain Alimentation Couche-Tard Inc. (TSX:ATD.B) added 47 cents to $46.99 as the company said its proposed acquisition of The Pantry has passed the required waiting period under U.S. competition law, without changes. The US$1.7-billion deal which will add 1,500 locations in 13 states to Couche-Tard's North American network is expected to close Monday.
The Toronto market fell 221 points or 1.5 per cent this week, pressured by a drop of about 5.5 per cent in the energy sector. Crude prices fell almost 10 per cent this past week.
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