Brent Oil Sinks under $59 on Mounting Global Tensions
Agence France Presse/17.12.14
Naharnet/Oil suffered another dizzying plunge on Tuesday, with Brent crude sliding to a five-year low under $59 as markets were rocked by shrinking Chinese manufacturing output and turmoil in Russia. At midday in London, benchmark contract Brent North Sea crude for January delivery slumped to $58.50 per barrel — the lowest level since May 2009 — and New York’s West Texas Intermediate (WTI) for January hit a similar nadir at $53.80. The oil market has plummeted by almost 50 percent since June, dented also by OPEC’s recent decision to hold its output ceiling in an oversupplied market. Sentiment was hit by the Russian central bank’s shock move to raise interest rates to 17 percent, which has failed to arrest the slide of the ruble.
The Russian ruble crashed to new record lows Tuesday, losing some 20 percent in value by the afternoon despite drastic overnight measures by the central bank to hike the key rate. The ruble hit 80 to the dollar and 100 to the euro on the Moscow Exchange.
– ‘Triple blow’ to markets –
“The combined effects of slumping oil, the Russian Central Bank’s interest rate hike and falling output from China have all come together to deliver a triple blow to the markets,” said ETX Capital analyst Daniel Sugarman.
“Lower output from China means less of a need for oil, while as a primary oil producer Russia really feels the pain of lower oil prices, compounded by the sanctions imposed earlier this year.”European stock markets saw volatile trading on Tuesday, sliding in morning deals on tumbling oil prices before rebounding briefly on news of bright investor sentiment in eurozone engine Germany. However, Europe’s main indices hit reverse gear again in early afternoon trade, in line with a renewed plunge in oil, which weigh on the profits and share prices of energy companies. “Everywhere you look at the moment, there is bad global news, be it the ruble, Chinese manufacturing, or most significantly, Brent crude oil,” Spreadex analyst Connor Campbell told Agence France Presse.
“If something doesn’t change, be it an OPEC/USA decision on oil, or a lifting of sanctions on Russia, the markets are going to be unable to build up a substantial bullish run to drag the global economic situation into calmer waters.”
In early afternoon deals, Frankfurt’s benchmark DAX 30 index fell 0.90 percent to 9,255.69 points, and the CAC 40 in Paris shed 1.55 percent to 3,943.46 compared with Monday’s close. London’s FTSE 100 slid 0.09 percent to 6,177.92 points, despite data showing Britain’s annual inflation rate slowed to a 12-year low of 1.0 percent in November.
Asian stock markets mostly fell Tuesday following Monday’s sell-off in Europe and the United States that was rooted in the sliding oil prices.
Hong Kong equities shed 1.55 percent, Sydney fell 0.65 percent and Tokyo dived 2.01 percent in value. Shanghai stocks however jumped 2.31 percent on hopes the government will introduce new measures to spur economic growth.
The ruble has now lost nearly 60 percent of its value since the start of the year amid the collapsing oil prices and Western sanctions over Russia’s support for the separatist uprising in eastern Ukraine. Half of Russia’s revenues come from oil and gas, and the 50 percent slump in oil prices in the past six months has had a major impact on the country’s economy. Investors also fretted over news that China’s manufacturing activity worsened in December with HSBC’s purchasing managers’ index (PMI) hitting a seven-month low, signalling weakness in the world’s second-largest economy and top energy consumer.
The preliminary PMI for the month came in at 49.5, below the break-even point dividing expansion and contraction.
– Euro rises on data –
The European single currency meanwhile rose Tuesday to $1.2541 from $1.2435 late Monday, lifted by upbeat eurozone and German data on the eve of the U.S. Federal Reserve’s latest monetary policy decision. German investment sentiment rose sharply in December after a rebound the previous month, driven by a weak euro and plunging oil prices, a survey showed Tuesday. The investor confidence index, calculated by the ZEW economic institute, jumped by 23.4 points in December, after rising for the first time this year in November, ZEW said in a statement. In addition, a key survey showed that business activity in the eurozone accelerated slightly in December. Markit Economics said its Composite Purchasing Managers Output Index for the 18-country zone that uses the single currency rose marginally to 51.7 points in December from 51.1 points in November.