Markets react to suprise OPEC decision to limit production

Tullow Oil leads gains for European oil-related companies

Stocks rallied in Asia and Europe after Opec’s surprise announcement. Photograph: iStock

Stocks rallied in Asia and Europe after Opec’s surprise announcement. Photograph: iStock

 

Stocks rallied in Asia and Europe after Opec’s surprise announcement of a deal to cut crude output spurred a surge in oil late Wednesday.

Energy companies led gains on the MSCI All-Country World Index, which is on course for its best quarter since 2013.

Tullow Oil led gains among European oil-related companies, jumping 7.1 per cent.

The ringgit was the best performer among Asian currencies as prospects brightened for Malaysia, Asia’s only major net oil exporter, and the yen slid by the most this month.

Sovereign bonds fell amid speculation higher energy prices will revive inflation. After posting its biggest gain in five months, crude slipped under $47 a barrel.

A global oil glut has weighed on crude prices for more than two years, damping inflation, hurting corporate earnings, and leading to negative bond yields in two of the world’s four biggest economies.

The Organisation of Petroleum Exporting Countries said its members agreed a preliminary deal to trim production to a range of32.5 million to 33 million barrels per day following informal talks in Algiers, although it won’t decide on targets for each country until a November meeting in Vienna.

“It really caught people on the hop - we weren’t expecting a cut in output at all,” said Derek Mitchell, a fund manager at Royal London Asset Management in London.

His fund owns shares of Royal Dutch Shell and BP and has assets under management of 93.8 billion pounds ($122 billion).

“It sends a message that there’s now a floor under the oil price. A tighter oil market will support earnings. There’s rightly a great deal of skepticism as to whether this cut will last, but for the time being, it’s a very nice thing to wake up to.”

Winners

Some of the winners from Opec’s plan include energy markets, with natural gas to coal and carbon buoyed by the announcement.

The Norwegian krone, the currency of Western Europe’s largest oil producer, touched its strongest level against the euro since August 2015, before giving up gains.

Industrial metals lead and tin climbed to the highest in more than a year, as higher oil prices raise the cost of production.

A global gauge of energy stocks rose. Some of the losers from Opec’s plan include bonds which fell, while measures of the market’s inflation outlook in the US and UK climbed. Travel-and-leisure stocks fell in Europe, with airlines including Deutsche Lufthansa leading the drop on prospects of higher fuel costs.

Japan’s yen slumped amid speculation that increased oil costs will help the central bank achieve its policy goals.

Stocks

The MSCI global index gained 0.4 per cent as of 10:48am London time, extending this quarter’s advance to 5.4 per cent.

A gauge of energy shares jumped 1.5 per cent after surging 2.8 per cent in the last session. The Stoxx Europe 600 Index rose 0.7 per cent, with oil companies leading the charge.

Total SA and Shell added 4.5 per cent or more. Lenders took their rebound into a second day, with Deutsche Bank up 0.9 per cent.

Commerzbank bucked the trend, falling 0.6 per cent after announcing plans to reduce 9,600 jobs and suspend dividends.