Market buoyed by OPEC meet
OIL prices rallied 5 percent yesterday, pushing European stocks higher, as traders seized on hints that OPEC could later decide to cut crude output.
Saudi Arabia’s influential Energy Minister Khaled al-Falih expressed optimism that the Organization of Petroleum Exporting Countries – which pumps about a third of global oil – would announce a deal to cut production in a market awash with crude.
The comments boosted the global oil market as ministers from the 14-nation cartel gathered for a crucial output meeting in Vienna.
That in turn boosted the share prices of Europe’s energy sector because higher oil prices tend to translate into rising revenues and profits.
Around midday, the Paris and London stock markets were up about 0.4 percent in value compared with Tuesday’s close.
British energy majors BP and Shell soared by about three percent, while French peer Total won 1 percent.
“The FTSE is . . . in rude health, as the rising chance of an OPEC output cut has driven energy firms into the green,” said analyst Joshua Mahony at traders IG.
“Despite starting the day on a gloomy tone, with RBS failing the Bank of England stress tests, it seems that markets are willing to focus on the positives, with rumours of a crude cut that could surpass expectations.”
London had been hampered in earlier deals after the BoE had revealed that the Royal Bank of Scotland had failed sector-wide stress tests.
Asian equities had struggled yesterday with investors growing uneasy over the chances of an output-cutting OPEC deal.
Uncertainty over the deal – with Iran and Iraq calling to be excluded and Russia looking only to freeze, rather than cut – has fuelled volatility on oil trading floors in the past week and on Tuesday both main oil contracts had plunged 4 percent.
“Failure to come up with a viable solution will see oil much lower tomorrow,” warned Oanda analyst Jeffrey Halley.
“The convoluted nature of the negotiations means compliance going forward will be an issue as well, one suspects.”
Worries about oil have weighed on global equities, which have enjoyed a strong few weeks since Donald Trump’s shock US election win, on hopes his policies will ramp up economic growth.
All three main New York indexes rose on Tuesday after data showed stronger-thanexpected third-quarter US growth, higher housing prices in September and a sharp rebound in consumer confidence in November.
Investors are also awaiting a referendum on Sunday in Italy on constitutional reform. Prime Minister Matteo Renzi has suggested he will step down if voters reject the proposal.
There are fears his resignation could spark elections in which populist anti-euro parties could do well.