The Australian dollar held up, but the local sharemarket is heading for a fall after global oil prices fell to new four year lows this morning in the wake of the decision by OPEC to stick to the oil-producer group’s existing output target of 30 million barrels of oil a day.
The unsurprising decision saw oil prices plunge – with US Style West Texas crude and Brent both shedding 6.3% in value by the close. WTI crude ended at $US69.07, after hitting a low of $US68.20, while Brent touched a low of $US71.58 and ended at $US72.58.
Both were the lowest these key oil indicators have been since May 2011.
With US share and bond markets closed for Thanksgiving (oil, gold and other commodities were traded electronically from around the world) markets in Europe ended higher, but our market is heading for a fall of around 17 points, according to the futures market.
Watch for the Woodside, Santos and other oil stocks to be sold off. Woodside shares were down 2.7% at $38.47 yesterday, Santos shares lost 3.1% to $11.61, Origin Energy fell 3.2% to $13.17 and Oil Search lost 2.6% to $8.47.
Gold fell around $US8 an ounce to $US1,190 in electronic trading this morning. Investors are watching Sunday’s gold referendum in Switzerland.
The Aussie dollar ended offshore trading around 85.50 and looking surprisingly strong given the OPEC decision and the fact that falling oil prices are adding to the pressures on our exports that falling iron ore and coal prices are already having.
OPEC said its 12 members, who collectively pump around one-third of the world’s oil, would comply with its current production ceiling of 30 million barrels a day. That would involve a supply cut of around 300,000 barrels a day, based on the cartel’s output in October – it had been as high as 30.6 million barrels a day earlier in the year. the cut, if it happens, will be immaterial.
The Vienna meeting it was clear that the gulf producers, led by the Saudis, will not cut production, as they did in 1986, and then see other countries such as Venezuela and Nigeria boost production and take advantage of the higher prices.
Falling oil prices will add to the pressures on the European economies from falling inflation – annual inflation in Germany last month dropped to 0.5% from 0.7%, and inflation was also lower in Spain.
Tonight, our time, the first report of this month’s Eurozone inflation rate is expected to show a dip back to 0.3% or lower, bringing the spectre of deflation even closer.
No wonder German bond yields fell under 0.70% for the 10 year bond (it was a brief fall) and rates in France fell to new all time lows.
This is the downside of falling oil and energy prices (and watch for something similar to pop up in today’s inflation report from Japan.
Japanese shares though are up more than 5% so far this month, second only in the region to Chinese shares which are at three year highs.
A 2.2% in the iron ore price to $US69.98 a tonne will give a tiny bit of support, but not much as investors take aim at oil related shares.
OPEC members are not scheduled not to meet till June next year, but it wouldn’t surprise to see some of its struggling members (such as Nigeria, Venezuela and Iran) push for an emergency meeting early in 2015 should prices continue to dip.
