Oil price declines weigh on world markets

LONDON:

World markets fell yesterday maintaining a gloomy trend set in Asia and the United States, and with concerns about a global glut of oil looming over the market.

Mixed results from the continent’s banking sector and losses in the mining sector pushed the pan-European STOXX 600 index down 0.6 percent. The losses came after oil prices fell 1.18 percent yesterday as investors grew increasingly doubtful that OPEC members will agree to cut output and as US inventories staged a surprisingly large increase.

Brent crude futures were down 73 cents at 1100 GMT, closing in on $50 a barrel for the first time in three weeks. “There have been rumors that Russia may not be on board with the production cuts and Iraq is also apparently seeking an exemption. The market is starting to question whether the OPEC agreement reached a couple of weeks ago is really as solid as originally thought,” Investec economist Ryan Djajasaputra said.

Iraq, OPEC’s second biggest oil producer, wants to be exempt from the cut, arguing it needs the revenues to fight Islamic State. Another factor behind European and Asian stock price weakness was disappointing results and forecasts from US companies on Tuesday - most notably with Apple recording declining iPhones sales.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.87 percent, while Japan’s Nikkei reversed earlier losses to close up 0.15 percent as the yen pulled back. European equities were also edgy as investors digested a slew of earnings reports, with commodity-related stocks and with British bank Lloyds under pressure, though well-received results from Santander buoyed Spanish stocks.

Antofagasta led the losses in the mining sector, dropping 6.5 percent.

CARNEY EFFECT

In currency markets, sterling recovered from Monday’s lows after Bank of England (BoE) governor Mark Carney said in a speech the central bank could not ignore the effect of sterling’s slide on inflation. This increased expectations that policymakers would leave rates unchanged next week, rather than cut them as many had expected.

Sterling rose 0.2 percent against the dollar to $1.2209, coming off Monday’s trough of $1.2081, which was the lowest level since the Oct. 7 “flash crash”. The euro, which slid to a 7 1/2-month low of $1.0851 on Tuesday, also rose on Wednesday and was up 0.32 percent to 1.0921 at 1100 GMT.

With investors looking ahead to US third-quarter gross domestic product data on Friday, the dollar index, which tracks the greenback against a basket of six global peers, fell 0.20 percent to 98.514.

It hit its highest level since Feb. 1 on Tuesday as traders saw a better than 78 percent chance of an interest rise hike by the Federal Reserve in December, according to CME Group’s FedWatch tool.

ASIA MARKETS RETREAT

Asian markets mostly retreated yesterday, with energy firms hit by sinking oil prices as fresh fears about a planned output cut by major producers was fanned by a report Russia will not take part. Crude has been in the ascendancy since last month when the Organization of Petroleum Exporting Countries, and later Moscow, agreed to output cuts in a bid to support prices.

But both contracts tumbled more than one percent Tuesday as the Russia-based Interfax news agency said the country’s envoy at OPEC, Vladimir Voronkov, had said output cuts are not “an option for us”.

And it extended losses yesterday in Asia, putting pressure on regional energy firms, while eyes are on the release later in the day of US stockpiles figures. The report came days after key OPEC member Iraq said it should be exempted from the final deal as it was fighting a war against the Islamic State group.

“They say talk is cheap and OPEC appears to be approaching the limits of its ability to jawbone oil higher without something concrete to put on the table,” Jeffrey Halley, senior market analyst at OANDA, said in a note. Sydney-listed Oil Search sank three percent while CNOOC lost around two percent in Hong Kong and Tokyo’s Inpex shed more than one percent.

Broader markets were also well into negative territory, with Hong Kong ending down one percent and Shanghai closing 0.5 percent off. Sydney tumbled 1.5 percent as a surge in inflation tempered expectations that Australia’s central bank will cut interest rates any time soon.

Seoul, Wellington and Manila each fell more than one percent, while Singapore was also sharply lower. However, Tokyo reversed morning selling to end slightly higher. —Agencies