NEW YORK: Brent crude touched fresh four-year lows yesterday, knocking down both energy-related shares and currencies after Opec’s decision a day earlier not to cut output reinforced prospects of an oil supply glut around the world.
The dollar mostly strengthened following the decision by the Organisation of Petroleum Exporting Countries on Thursday, a move that slammed commodity currencies like the Norwegian crown, which fell to five-year lows against the dollar and the euro.
Eurozone government bond yields held near record lows as the falling energy prices pulled down consumer price growth across the bloc and raised the chances of more stimulus from the European Central Bank on increased deflation fears.
European shares snapped a five-day winning streak and the S&P 500 slipped from record highs as the price of energy shares fell across the board on both sides of the Atlantic.
But other equity sectors rose, lifting the Dow industrials and the Nasdaq on Wall Street.
Brent crude oil steadied above $73 a barrel after earlier falling to $71.12, while US crude fell six percent to below $70 a barrel. Investors said Opec’s decision, in tandem with higher US output, would leave oil markets heavily oversupplied.
“We are seeing continued oversupply,” said Bill Hubard, chief economist at Markets.com. “I think $70 a barrel will be the new norm. We could see oil go considerably lower.”
Brent rebounded 56 cents to $73.14 a barrel, while US crude fell $4.44 to $69.25 a barrel.
The European oil and gas sector fell 3.8 percent, while the S&P Energy index fell 5.8 percent. The energy index in Europe has lost $240bn in market value since late June, more than the market cap of Royal Dutch Shell Plc , Europe’s biggest oil major, Thomson Reuters data shows.
“At $72 a barrel, we’re well below the pain threshold for many companies in the sector, as well as many exporting countries such as Iran, Libya or Russia,” said IG France’s chief market analyst, Alexandre Baradez.
The pan-European FTSEurofirst 300 fell 0.26 percent to 1,388.77, while MSCI’s all-country world equity index fell 0.24 percent to 426.28.
Stocks on Wall Street were mixed to slightly higher.
The Dow Jones industrial average rose 44.9 points, or 0.25 percent, to 17,872.65. The S&P 500 fell 0.18 points, or 0.01 percent, to 2,072.65 and the Nasdaq Composite added 17.17 points, or 0.36 percent, to 4,804.49.
German 10-year yields — the benchmark for euro zone borrowing - were down a fraction at 0.70 percent.
Yields on benchmark 10-year US Treasuries fell to 2.2043 percent, pushing its price up 8/32.
The dollar gained 0.71 percent to 118.52 yen, while the dollar index, which measures the greenback against a basket of major currencies, gained 0.67 percent to 88.192.
Reuters
