While you were sleeping: OPEC sinks oil

Tuesday 8th December 2015

Wall Street dropped with the price of oil as OPEC’s decision to keep its output at current elevated levels fuelled concern about the increasing global glut.

“We’re plunging with the dawn of an OPEC without quotas,” John Kilduff, a partner at Again Capital, a New York based hedge fund, told Bloomberg. “The Saudis doubled down on their strategy of driving out higher-cost producers. They are prepared to play a long game to return to dominance.”

In 12.18pm trading in New York, the Dow Jones Industrial Average weakened 0.74 percent. In 12.02pm trading, the Standard & Poor’s 500 Index dropped 0.83 percent, while the Nasdaq Composite Index declined 0.68 percent.

Declines in energy shares of Chevron and those of Exxon Mobil, last trading 3.2 percent and 3 percent lower respectively, led the drop in the Dow.

Brent crude fell to US$41.38 and US crude weakened to US$38.15 a barrel. And there may be worse ahead.

"It means that there is a loss of confidence in the market after OPEC, and people expect low prices to last longer,” Oystein Berentsen, managing director of crude oil at Strong Petroleum in Singapore, told Reuters. "Hence the back of the curve will be under pressure from producer hedging via selling the back of the curve to limit loss or lock in a small profit to reduce risk."

Compounding the decline in oil—and other commodities—was the rising US dollar amid a widely expected Federal Reserve interest rate increase next week.

"The Fed is pretty locked in regarding a hike next week and any fall in commodity prices will be seen as transitory factors," Art Hogan, chief market strategist at Wunderlich Securities in New York, told Reuters.

Caught in the fray and concern about weakening demand from China was iron ore. Ore with 62 percent content delivered to Qingdao shed 2.4 percent to US$39.06 a dry ton, a record low in daily prices compiled by Metal Bulletin dating back to May 2009.

Bucking the trend, shares of Keurig Green Mountain soared, up 73 percent, after the company said it agreed to be bought by an investor group led by JAB Holding for about US$13.9 billion in cash.

"The 78 percent premium should keep other bidders at bay," SunTrust Robinson Humphrey analyst William Chappell wrote in a client note, according to Reuters.

In Europe, the mood was brighter too. The Stoxx 600 Index ended the session with a 1.1 percent increase from the previous close. France’s CAC 40 Index rose 0.9 percent, while Germany’s DAX Index climbed 1.3 percent.

Eurozone equities recovered some of last week’s losses following a smaller than expected boost of monetary stimulus from the European Central Bank, announced last Thursday, as investors reassessed the additional measures.

“It’s a rebound -- everybody thought the news from the ECB was disappointing, the markets expected much more but the reaction was overdone,” Soeren Steinert, associate director for equities trading at Quoniam Asset Management in Frankfurt, told Bloomberg. “The market seems to be fine now.”

The UK’s FTSE 100 Index slipped 0.2 percent.

BusinessDesk.co.nz

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