Oil near four-year low

30 Nov, 2014 - 00:11 0 Views

The Sunday Mail

OIL traded near its lowest price in four years and energy stocks sank after OPEC refrained from reducing output.

Bond gains sent yields from Japan to Germany to record lows, and the dollar strengthened.

Brent crude headed for its biggest weekly drop since 2011, down 9,3 percent.

Japan’s two-year rates turned negative for the first time and Germany’s 10-year yield fell to 0,694 percent.

The Bloomberg Dollar Spot Index climbed to a five-year high.

Gold and silver fell for a third day.

The Organization of Petroleum Exporting Countries kept its production ceiling unchanged, underscoring the price war in the crude market and challenge to U.S. shale drillers.

The rout in oil is damping inflation, with price growth slowing in Japan and Germany and already negative in Spain.

A report Friday showed euro-area consumer prices slowed to 0,3 percent this month from a year earlier, as forecast by economists.

European Central Bank President Mario Draghi signalled on Thursday he is open to expanding asset purchases to stave off deflation.

“OPEC’s decision yesterday(Thursday) came as a surprise when looking at the market reaction and made investors more cautious,” said Tobias Britsch who helps oversee about $30 billion at Meriten Investment Management GmbH, in Dusseldorf, Germany.

“This could hurt a year-end rally. I would not touch oil and gas stocks as it’s far too risky now. Lower energy prices could put some pressure on euro-area inflation, and the ECB might need to go for full QE.”

West Texas Intermediate crude oil dropped 6,6 percent from its November 26 close.

That sent the Bloomberg Commodity Index (BCOM) down 2,1 percent, its biggest drop since June 2013.

WTI has lost 30 percent this year, while Brent has plunged 35 percent.

The repercussions were felt through asset classes. Oil and gas producers in the MSCI All-Country World Index dropped for a fifth day, the longest streak in more than a month. That sent the gauge to a 0,2 percent decline Friday, trimming its monthly gain to 1,7 percent.

The MSCI Emerging Markets Index slid 0,4 percent, with NOOC Ltd. and Sasol Ltd. down more than 5 percent.

The measure has fallen 0,7 percent in November. Europe’s Stoxx 600 slipped today after five straight days with no losses.

Energy producers declined the most among 19 industry groups, while airlines rallied. Air France-KLM Group and Deutsche Lufthansa AG climbed more than 4,5 percent. EasyJet Plc added 1,2 percent.

Friday’s move trimmed the Stoxx 600 advance to 12 percent from a low in October.

The gauge is heading for a 2,7 percent monthly gain, the most since February.

Germany’s DAX Index fell 0,4 percent after an 11-day gain sent it near its July record.

“The OPEC decision is more bearish than I thought,” Olivier Jakob, managing director of research company Petromatrix GmbH, said by phone from Paris.

“It means the price floor has been lowered” and will make life harder for oil producers, he said.

“It will support consumers and increase their disposable income. It will also lower the burden for emerging states that have subsidies for oil products.”

In the US, where markets were closed Thursday for the Thanksgiving holiday, S&P 500 futures indicated the index will slip from a record.

It’s added 11 percent from the low in October and is heading for a 2,7 percent monthly gain. US equity markets shut at 1 p.m. New York time Friday. Government securities advanced as tumbling oil prices cooled the outlook for inflation, preserving the value of fixed payments on bonds.

Ten-year US Treasuries, which didn’t trade Thursday, climbed for a sixth day, pushing yields down four basis points, or 0.04 percentage point, to 2,2 percent, the lowest in more than a month.

The rate on Japan’s two-year notes slid to as low as minus 0.005 percent, a record, according to Japan Bond Trading Co.

In Europe, Austrian, Belgian, Dutch, Finnish, French, Irish, Spanish, Italian and Portuguese yields all fell to records with those in Germany. Australian and British 10-year yields declined to 18-month lows.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0,2 percent to its highest level on a closing basis since March 2009.

Currencies of commodity-producing nations were among the biggest losers against the dollar. Norway’s krone extended yesterday’s 1,4 percent slump, dropping 0,7 percent and touching 7,0151 per dollar, the weakest level since March 2009.

Norway is the biggest oil producer in Western Europe.

Canada’s currency, known as the loonie, weakened 0,5 percent after sinking 0,7 percent yesterday.

Metals declined as lower oil prices added to concerns over deflation.

Gold sank 0,7 percent to $1,18,.70 an ounce, and silver dropped 1 percent to $16,09 an ounce. Copper slid as a strike at Peru’s Antamina mine, the world’s sixth-largest, was set to end.

The metal fell 1,2 percent to $6 482 a metric tonnes.

Prices are down 3,6 percent this week, the most since March. The cost of insuring corporate debt rose, with the Markit iTraxx Europe Index up one basis point, according to data compiled by Bloomberg.

Credit-default swaps on Shell, Europe’s biggest oil company, were the worst performing in the benchmark this month, climbing 35 percent to 46 basis points, followed by increases in Eni SpA, Statoil ASA and Total.

Yields on investment-grade bonds in euros approached a record low, falling to an average 1,16 percent, Bank of America Merrill Lynch Index data show.

Swaps on Russia’s sovereign debt rose for a fifth day, climbing 11 basis points to a more than three-year high of 311 basis points.

The ruble weakened to a record low, down 1,9 percent to 49.58 per dollar. It extended this month’s slide to 13 percent, the most among 31 major peers.

Russia’s currency has depreciated 34 percent this year as sanctions over Ukraine and the slump in oil price exacerbate an economic slowdown, leaving the country on the brink of recession.

In China, the Shanghai Composite Index capped its biggest weekly advance in four years, with today’s 2 percent gain leaving it 7,9 percent higher over five days. Stocks rallied amid speculation the central bank may continue to loosen monetary policy after cutting rates a week ago.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong added 1,2 percent Friday. – Bloomberg.

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