Oil tumbles with no output cut

Dhaka,  Sun,  04 December 2016
Published : 28 Nov 2016, 10:33:37 | Updated : 28 Nov 2016, 12:03:30

Oil tumbles as output cut looks elusive; dollar sinks

Oil prices tumbled on Monday on fears that producer countries may fail to agree an output cut, pressuring US stocks and the dollar as traders reversed their "Trumpflation" trade as weak oil prices would reduce pressure on US interest rates to rise.

That gave some relief to Asian shares, which had underperformed on worries about capital flight to higher-yielding US markets in the weeks since Donald Trump's Nov.8 election win.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 per cent, led by gains in Hong Kong .HSI and Taiwan .TWII.

In contrast, US stock futures ESc1 slipped 0.3 per cent after their stellar performance this month on hopes US President-elect Trump's policy of fiscal spending, deregulation and protection of domestic industries will boost US inflation and benefit Corporate America.

Wall Street's four main indexes .DJI .SPX .IXIC all hit record highs last week, a feat last achieved in 1999.

Japan's Nikkei average .N225, which performed even better than Wall Street shares thanks to the yen's fall, also lost its luster, falling 0.8 per cent.

Brent crude futures fell as much as 2.0 per cent in Asia on top of their 3.6 per cent decline on Friday on rising doubts over whether the Organization of the Petroleum Exporting Countries will reach an output deal. The benchmark contract last traded at $47.02 per barrel LCOc1, down 0.4 per cent on the day.

Saudi Arabia said on Friday it will not attend talks on Monday with non-OPEC producers to discuss supply cuts.

"Oil prices have fallen considerably on worries about the deal. That would pressure energy shares, and could hit the entire stock markets. Given their rally in recent days, it's no surprise to see some adjustment," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Saudi Arabia's energy minister Khalid al-Falih said on Sunday that he believed the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

His comments raised worries that a preliminary agreement reached in September for OPEC to reduce output to between 32.5 million and 33 million barrels per day may fall apart when OPEC ministers meet on Wednesday to finalise that deal.

OPEC also wants non-OPEC producers such as Russia to support the intervention by curbing their output.

As lower oil prices reduce inflationary pressure, they sapped momentum for a sell-off in US Treasuries and a rally in the dollar, the market's favorite play since the US election.

The dollar sank more than 1.5 per cent against the yen to 111.50 yen JPY=, down sharply from its eight-month high of 113.90 set just on Friday.

The dollar's index against a basket of six major currencies .DXY =USD printed at 100.66, slipping 0.8 per cent on day and off its 13 1/2-year high of 102.05 touched on Thursday.

The dollar shed more than 0.5 per cent against many emerging market currencies, including the Mexico peso MXP=, the biggest loser after Trump's election victory, the South African rand ZAR= and the Turkish lira TRY=.

The euro EUR= gained 0.9 per cent to $1.0666, extending its rebound from its near one-year low of $1.0518 touched on Thursday.

The single currency has so far shown limited reaction to the French conservatives' presidential primaries on Sunday.

Former Prime Minister Francois Fillon, a socially conservative free-marketeer, won the run-off, setting up a likely showdown next year with far-right leader Marine Le Pen that the pollsters expect him to win.

Gold XAU= bounced back to $1,187.0 per ounce from Friday's low $1,171.5, which was its lowest level since early February.

The yield on 10-year US Treasuries US10YT=RR dropped almost 5 basis points to 2.323 per cent, off its 16-month high of 2.417 per cent touched on Thursday, according to Reuters.

ZR

 
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