LONDON (Alliance News) - There was a late roller-coaster ride for equities and oil prices Thursday, as markets reacted to the possibility of oil supply cuts, after the prospect was raised by the Russian Energy Minister and then dampened by OPEC delegates.
Oil prices rallied Thursday afternoon, with Brent oil spiking above the USD35 a barrel mark after reports that Russian officials are ready to meet with members of the Organization of the Petroleum Exporting Countries (OPEC) in February to discuss potential "coordination on production".
A supply glut has exerted significant pressure on the oil price since late 2014, while fears about a global economic slowdown have also weighed.
Russian Energy Minister Alexander Novak said Saudi Arabia had proposed a 5% production cut by each country, according to a number of media reports.
The Wall Street Journal said Russian officials have long insisted there are no plans to cut production, in part citing the difficulty of halting and restarting production in the freezing conditions of the main producing regions. However, Russia's Novak said the situation "had changed somewhat" since earlier such consultations.
Brent oil spiked to a high of USD35.79 a barrel after Novak's comments, while the FTSE 100 reversed all of its intraday losses to trade momentarily higher.
However, optimism was curbed as Reuters reported that OPEC member Iran presents a challenge to any deal to cut supply levels, as it looks to re-capture market share following the lifting of economic sanctions by the West. Moreover, OPEC delegates later said there were no plans for talks to cut oil production, Bloomberg News reported citing four OPEC delegates.
"The huge swings in markets currently leave many investors with very little choice but to sit on their hands when it comes to longer term and directional positions, and the 'will they won't they' saga that is likely to rumble on between OPEC and Russia will not help matters," said James Hughes, chief market analyst at GKFX Financial Services.
The OPEC comments sent oil prices and stocks, in particular, down. At the London close Brent oil traded at USD34.13 a barrel, similar to the levels before Novak's comments. Oil-related stocks managed to hold onto their gains, while Royal Dutch Shell 'B' shares ended up 2.4%, BG Group up 0.8% and BP, up 1.5%.
Separately, Shell is set to formally complete its mega-merger with BG Group next month after BG shareholders gave the deal the green light at a general meeting held Thursday.
BG Group said 99.55% shareholders voted in favour of the merger between the two giants at a general meeting, with over 87% approving the court-sanctioned scheme of arrangement at a related court meeting.
The approval follows on from over 83% of Shell shareholders approving the deal on Wednesday.
With both sets of shareholders in favour of the deal, completion of the deal relies on the court sanctioning the scheme of arrangement by which the merger is being facilitated. A court hearing will be held on February 11, with the deal becoming effective on February 15 if all goes to plan.
The FTSE 100 closed down 1.0% to 5,931.78, the FTSE 250 ended down 0.5% at 16,196.55 and the AIM All-Share closed up 0.2% at 687.78. In Europe the French CAC 40 ended down 1.3% and the German DAX 30 fell 2.4%.
US equities were faring better than Europe at the London close. The DJIA traded up 0.1%, the S&P 500 was up 0.3% and the Nasdaq Composite was up 0.6%.
The Nasdaq was supported by strong gains made by Facebook, which traded up 13%. The social media giant reported a surge in fourth-quarter profit, driven largely by a 44% jump in revenue after the New York closing bell on Wednesday. Both earnings and revenue trumped Wall Street estimates.
However, a report from the US Commerce Department said there was a substantial decrease in new orders for US manufactured durable goods in December.
The report showed durable goods orders plunged by 5.1% in December compared to the 0.6% drop expected by economists. The flat reading originally reported for November was also revised to a 0.5% decrease.
The steep decline in durable good orders was partly due to weakness in the transportation sector, as orders for transportation equipment tumbled by 12.4% in December after slipping by 0.5% in November. Aircraft orders led the way lower, as orders for defence aircraft and parts plummeted by 69.1% and orders for non-defense aircraft and parts dove by 29.4%.
At the London stock market close, the pound had made up some ground on the dollar. Sterling traded the greenback at USD1.4378 compared to USD1.4261 on Wednesday. The euro traded at USD1.0951 versus USD1.0868 on Wednesday.
The gold price was down from the close on Wednesday. The precious metal was quoted at USD1,115.39 an ounce on Thursday versus USD1,116.84.
In UK corporate news, Anglo American closed as the best performer in the FTSE 100, up 12%. The miner said it increased production of its main commodity, iron ore, by more than 10% during 2015 and said it plans to lower costs to counter lower iron ore prices. Although Anglo American reported rises in production of its main commodity, the miner reported falls in production across most of its others.
Anglo produced 54.1 million tonnes of iron ore during the year, more than a 10% rise from the 48.9 million tonnes produced in 2014, as the continuing ramp up of the Minas Rio mine in Brazil offset a decline in production from the Kumba hub in South Africa.
Production from Kumba in South Africa fell 7% year-on-year to 44.9 million tonnes whilst the Minas Rio mine in Brazil produced a total of 9.2 million tonnes in the year after only producing a 688,000 tonnes in 2014. Production from Kumba fell mainly as a result of the Shishen mine being transitioned to a lower-cost pit configuration.
Ashtead Group was the worst performer in the blue-chip index, down 6.4%. Shares in the equipment rental business were dragged down by weak results reported on Wednesday by US-peer United Rentals.
For the fourth quarter of 2015, United Rentals reported total group revenue USD1.52 billion and rental revenue was USD1.27 billion, compared with USD1.56 billion and USD1.32 billion, respectively, for the same period the prior year. United Rentals shares were down 16% in New York.
In the FTSE 250, FirstGroup closed down 12%, making it the worst performing mid-cap stock. The transport company said it was lowering its outlook for operating profit in the current financial year, after a difficult third quarter across divisions.
It said its group revenue in the third quarter to the end of November was down 9.5% on a constant currency basis, after its sales were hit by the number of First Student operating days this year, due to the timing of the school calendar, and changes to its rail franchise portfolio. Shares in peer Go-Ahead Group ended down 1.2%.
Paypoint was hit in part by unseasonably warm winter weather conditions in the UK in the third quarter of its financial year. Total revenue for the quarter to the end of December fell 3.3% to GBP58.1 million, hit by declines in top-up and billing activity. Overall transactions processed in the quarter rose 3.9% to 225.4 million year-on-year. The stock closed down 5.0%.
There are still a number of economic releases overnight from Japan in the economic calendar. At 2330 GMT, there are Japanese inflation and unemployment data, before industrial production at 2350 GMT. The data is released ahead of the Bank of Japan's monetary policy decision on Friday at 0300 GMT.
In the European calendar, the first reading of French fourth quarter GDP is at 0630 GMT, before German retail sales at 0745 GMT and Spanish GDP at 0800 GMT. Eurozone private loans data is at 0900 GMT and consumer price index is at 1000 GMT.
The first reading of US fourth quarter GDP is at 1330 GMT, as is the employment cost index and personal consumption expenditures prices. Chicago Purchasing Managers Index is at 1445 GMT and Reuters/Michigan Consumer Sentiment Index is released at 1500 GMT.
In the UK corporate calendar Friday, broadcaster Sky reports half-year results as does casinos and bingo hall operator Rank Group. There are trading statements from Scottish soft drinks maker AG Barr and retirement housebuilder McCarthy & Stone, while miner Vedanta Resources releases a third-quarter production report.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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