Oil prices rallied around eight percent Wednesday, helping push European and US stocks higher as OPEC thrashed out its first oil output cut since 2008.
“An OPEC deal to cut oil output lifted oil prices back above $50 per barrel, making the energy sector the top riser,” CMC Markets analyst Jasper Lawler said in a note to clients.
“A rise in bond yields coincided with the jump in the oil price. If the deal means oil has finally put in its bottom, it should help raise inflation expectations and eventually lead to higher interest rates,” he said in a note to clients.
Defying expectations, the 14-strong OPEC cartel agreed at talks in Vienna to lower its monthly output by 1.2 million barrels per day (bpd) to 32.5 million bpd from January 1.
The deal, which aims to reduce a global supply glut that has led to a collapse in oil prices, saw crude soar to above $50 but still around half its 2014 levels.
Europe’s main indices in Paris, London and Frankfurt all etched up modest gains at closing.
British majors BP won 3.8 percent and Shell gained 4.3 percent while French peer Total rose 2.4 percent.
London had been hampered in earlier deals after the Bank of England revealed that the Royal Bank of Scotland had failed sector-wide stress tests.
Asian equities had struggled Wednesday with investors growing uneasy over the chances of an output-cutting OPEC deal.
Uncertainty ahead of the deal — with talks bogged down between OPEC’s three biggest producers, Saudi Arabia, Iraq and Iran — fuelled volatility on oil trading floors in the past week and on Tuesday both main oil contracts had plunged four percent.
“Cooperation does appear to have trumped competition, with even Iraq agreeing to cut output despite the difficulties the country faces in fighting ISIS,” said Lawler, referring to Islamic State group extremists.
Worries about oil have weighed on global equities, which have enjoyed a strong few weeks since Donald Trump’s shock US election win, on hopes his policies will ramp up economic growth.
Wall Street churned higher ahead of the OPEC deal, as well as fresh signs the incoming Trump administration plans to aggressively pursue tax reform.
The Republican’s nominee for Treasury Secretary, former Goldman Sachs banker Steven Mnuchin, said in television interviews he plans to prioritise tax reform and easing of banking regulations to encourage more lending.
Traders are also eyeing the release of US jobs data this week and a slew of manufacturing indicators that could provide a better picture of the state of the world’s top economies.
Also on the horizon is Sunday’s referendum in Italy on constitutional reform. Prime Minister Matteo Renzi has suggested he will step down if voters reject the proposal.
There are fears his resignation could spark elections in which populist anti-euro parties could do well, and possibly even lead to the country leaving the EU.
– Key figures around 1645 GMT –
Oil – West Texas Intermediate for January delivery: UP $3.5 at $48.73 per barrel
Oil – Brent North Sea for January: UP $3.98 at $51.30
London – FTSE 100: UP 0.2 percent at 6,783.79 points (close)
Frankfurt – DAX 30: UP 0.2 percent at 10,640.30 (close)
Paris – CAC 40: UP 0.6 percent at 4,578.34 (close)
EURO STOXX 50: UP 0.5 percent at 3,051.96
New York – Dow: UP 0.4 percent at 19,202.51
Tokyo – Nikkei 225: FLAT at 18,308.48 (close)
Hong Kong – Hang Seng: UP 0.2 percent at 22,789.77 (close)
Shanghai – Composite: DOWN 1.0 percent at 3,250.03 (close)
Euro/dollar: DOWN at $1.0579 from $1.0650 Tuesday
Dollar/yen: UP at 114.33 yen from 112.36 yen
Pound/dollar: UP at $1.2495 from $1.2490 – AFP.
