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Category: Stockmarket / Currency / Markets / Futures / Oil and Gas

US shares generally fall despite energy stock surge

Thursday, 1 Dec 2016 05:55:53 | Rebecca Hyam

Oil producers have agreed to cut output by 1.8 million barrels per day to support prices. (Fabio Pinheiro: www.flickr.com)

An agreement by OPEC to reduce oil production sent oil prices soaring overnight and led to strong gains for the energy sectors in Europe and the United States.

Markets at 8:15am (AEDT):

  • ASX SPI 200 futures +0.3pc 5,460
  • AUD: 73.78 US cents, 59 British pence, 84.47 Japanese yen, 69.66 euro cents, $NZ1.042
  • US: S&P 500 -0.27pc to 2,198, Dow Jones +0.01pc to 19,123, Nasdaq -1.05pc to 5,323
  • Europe: Euro Stoxx +0.49pc to 327.41, FTSE +0.17pc to 6,783, DAX +0.19pc to 10,640
  • Commodities: Gold -1.24pc to $US1,173.71/ounce, Brent crude oil +8.78pc to $US50.45, iron ore +1.4pc to $US73.50

During a meeting in the Austrian capital, Vienna, OPEC agreed to cut production by 1.2 million barrels per day to 32.5 million barrels from January next year.

It was the first time since 2008 the organisation had agreed to cut production.

Non-OPEC member Russia will also curb production for the first time in 15 years to help support global oil prices.

Saudi Arabia will take the bulk of the cuts by slashing output by 500,000 barrels of oil per day to 10.06 million barrels.

Fellow Gulf members of OPEC, the United Arab Emirates, Kuwait and Qatar would cut by a total of 300,000 barrels per day.

In an unexpected development, Iraq agreed to reduce production by 200,000 barrels per day.

Iran was allowed to boost production slightly from its October level, after arguing it needed to regain market share that had been lost due to Western sanctions.

NAB's global co-head of FX Strategy Ray Attrill said the agreement would reduce global oil supply by "just under 2 per cent".

CommSec's chief economist Craig James said oil prices jumped by about 10 per cent in response to the deal.

"Yesterday we saw the oil prices around $US45 per barrel, today they're around $US50 a barrel, so it's certainly an amazing transformation in terms of the oil market in the space of a day," he said.

IG's chief market strategist, Chris Weston observed that the OPEC deal exceeded expectations.

"The consensus was that we would get some sort of loose agreement from the collective that kept oil supported, but left the market asking many more questions," he wrote in an economic note.

"What we have seen however has been real meat on the bone, not just from gaining an understanding around production cut allocations from the more tricky OPEC members, including Iran and Iraq, but it seems Russia was so enthused by what they heard that they have increased their own production cut levels from 200,000 to 250,000 to 300,000 a day through the first half in 2017.

"Most oil strategists had merely expected a freeze here."

But CommSec's Craig James warned the ratification of the agreement with countries outside of the OPEC cartel could prove challenging.

"The last thing I think they wanted overnight was that if you didn't get an agreement, that oil prices could have fallen to $US25 or $US30 a barrel - nobody wanted that - so there was very much a reluctant agreement that's been in place by the OPEC producers," he said.

"And I think we're going to see the same sort of thing coming out from the non-OPEC producers - they don't want to do it, but they know it's in their best interests."

The S&P 500's energy sector gained more than 5 per cent, reaching a 17-month high, boosted by gains in Exxon and Chevron.

In US economic news, a key private sector employment report showed employers ramped up hiring throughout November and consumer spending also rose.

The Automatic Data Processing (ADP) report showed private payrolls rose by 216,000 from October to November.

That was well above the 170,000 increase expected by a majority of economists.

The private sector data precedes the US Labor Department's official job report for November, which is tipped to show 180,000 new jobs in the month.

European shares gained ground, supported by the OPEC deal.

The local share market is set to open higher, with the ASX SPI 200 up 0.4 per cent to 5,464.

The Australian dollar slumped overnight and, at 8:15am (AEDT), it was worth 73.78 US cents.

West Texas crude oil jumped to $US49.36 a barrel, the price of a barrel of Tapis was higher at $US50.04 and spot gold eased to $US1,173.71 an ounce.

Today's agenda:

Australia:

  • Building approvals – October (11:30am AEDT)
  • Private sector credit – October (11:30am AEDT)
  • Flight Centre half year results (8:30am AEDT)
  • Aristocrat Leisure FY results (8:30am AEDT)
  • Bank of Queensland AGM (11:00am AEDT)
  • Medibank Private investor day

Europe:

  • OPEC meeting in Vienna
  • CPI – November – October (9:00pm AEDT)

UK:

  • BoE financial stability report (8:00pm AEDT)

US:

  • Personal income/spending – October (12:30am Thusday AEDT)
  • Personal consumption expenditure inflation – October (12:30am Thusday AEDT)
  • US Fed officials Powell and Mester speak

AustraliaPlus


 

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