Markets win boost on hopes of OPEC oil cut

AFP

Oil prices rallied more than six percent on Wednesday, pushing European and US stocks higher as traders seized on hopes that OPEC could later decide to cut crude output.
Saudi Arabia’s influential oil minister Khaled al-Falih sounded an upbeat note that the Organization of the Petroleum Exporting Countries — which pumps about a third of global oil — would announce a deal to cut production. The comments boosted the global oil market, long awash with crude, as ministers from the 14-nation cartel met in Vienna. That in turn boosted the share prices of Europe’s energy sector — higher oil prices tend to translate into rising revenues and profits.
In mid afternoon trading, Paris and London stock markets rose around one percent in value compared with Tuesday’s close. British energy majors BP and Shell soared by around four percent, while French peer Total gained 2.4 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 on Wednesday with investors growing uneasy over the chances of an output-cutting OPEC deal.

VOLATILITY ON TRADING FLOORS
Uncertainty over the deal — with Iran and Iraq initially calling to be excluded and Russia looking only to freeze, rather than cut — fuelled volatility on oil trading floors in the past week and on Tuesday both main oil contracts had plunged four 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.”
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. Wall Street opened higher, driven by oil-linked stocks on OPEC hopes, as well as fresh signs that the incoming Trump administration plans to aggressively pursue tax reform.
The Republican’s nominee for Treasury Secretary, former Goldman Sachs banker Steven Mnuchin, said in television interviews he plans to prioritise tax reform and easing of banking regulations to encourage more lending.
Traders are also eyeing the release of US jobs data this week and a slew of manufacturing indicators that could provide a better picture of the state of the world’s top economies. Also on the horizon is Sunday’s referendum in Italy on constitutional reform. Prime Minister Matteo Renzi has suggested he will step down if voters reject the proposal.