Oil hits 'sweet spot' at US$50, boosting stocks as dollar weakens

[LONDON] Oil surpassed US$50 a barrel for the first time in more than six months on signs a two-year surplus is coming to an end, lifting energy and mining companies and buoying currencies where oil is produced.

A drop in US stockpiles and shrinking output in Nigeria and Venezuela contributed to the gains in Brent, which is up more than 80 per cent from January's low of US$27.10.

The Bloomberg Commodity Index headed for the highest close in six months as metals also advanced, and miners in the Stoxx Europe 600 Index headed for their biggest three-day jump in more than a month. The Norwegian krone led gains among major currencies, while Malaysia's ringgit was among the best performers in emerging markets. Qatar bonds fell after the government raised US$9 billion in a debt sale. The cost of insuring highly rated corporate debt against default fell for a fifth day, the longest run in six weeks.

Brent is recovering after tumbling to a 12-year low in January that helped roil global financial markets and raise concern over the strength of the world economy. Now, the International Energy Agency and Goldman Sachs Group Inc say a glut is dissipating as low prices take their toll on supplies. That may leave prices high enough to alleviate the threat of deflation and still low enough that they don't impinge on economic growth.

"It could well be that we have arrived at a 'sweet spot' - low enough to support consumers and curtail industry job cuts, but not high enough to rile central banks and bond markets," said Michael Ingram, a market strategist at BGC Partners.

Brentcrude rose 1.2 per cent at US$50.35 a barrel at 7:48 am in New York and West Texas Intermediate climbed as high as US$50.09. Bloomberg's index of commodity returns gained 0.9 per cent, rising for a second day to the highest since Nov 6.

US inventories slid by 4.23 million barrels last week, exceeding an expected drop of 2 million barrels. Attacks in Nigeria have cut production to a 20-year low and Venezuela is struggling to maintain output amid power cuts. Producers in Canada are beginning to restart oil-sands operations halted by wildfires.

"Supply disruptions and the big drawdown in US inventories has pushed Brent above US$50, but the shift in sentiment across global markets has been one of the big drivers in the run up from the lows seen in January," said Norbert Ruecker, head of commodity research at Julius Baer Group Ltd in Zurich.

"The challenge for lots of economies that depend on petrodollars has eased a bit, compared with when oil was at US$30, but it's definitely not gone."

French power for delivery in June climbed as much as 3.6 per cent to 25.75 euros a megawatt-hour, the highest price since March 31, as a strike that has halted refineries across the nation spread to nuclear power plants. Output at 11 reactors operated by Electricite de France SA was reduced by the protests against a new labor law.

Copper advanced 0.8 per cent to US$4,690 a metric ton, a third day of gains. The metal used in wires and cables is heading for the first weekly gain this month. Nickel added 0.7 per cent and zinc rose 2.3 per cent. Gold is set to halt six days of losses as it rebounds from the lowest level in seven weeks.

The US has durable goods orders data for April due as well as weekly jobless claims figures. In addition, leaders from the Group of Seven nations are meeting in Japan to discuss topics including economic policy, climate change and boosting infrastructure investment.

The yield on Qatar's US$2 billion of bonds due 2022 rose one basis points to the highest in almost two months at 2.64 per cent. The nation sold US$3.5 billion in five-year notes priced to yield 120 basis points more than US Treasuries, the same amount in 10-year bonds at 150 basis points over Treasuries and US$2 billion of 30-year paper at a 210 basis-point spread.

Treasuries were little changed before an auction of US$28 billion of seven-year notes, having seen strong demand at sales earlier this week. A gauge of demand at a US$34 billion sale of five-year notes Wednesday rose to the highest since 2014 as primary dealers were awarded the lowest per centage at an offering of the securities in data going back to 2003. That came a day after a US$26 billion two-year note sale also left dealers with the lowest share on record.

The euro-area's higher-yielding sovereign bonds declined. Spain's 10-year yield rose four basis points to 1.51 per cent, having slid 10 basis points the previous two days. Yields on similar-maturity Italian debt rose three basis points to 1.38 per cent, while Portugal's was five basis points higher at 3.01 per cent.

The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped one basis point to 71 basis points in its longest losing run since April 14. A gauge of swaps on junk-rated companies fell three basis points to 306 basis points, a four-week low.

Higher oil prices supported the Norwegian krone, which rose 1 per cent versus the greenback, and Malaysia's ringgit, which advanced 0.5 per cent. The MSCI Emerging Markets Currency Index rose 0.3 per cent, led by currencies from commodity-producing countries. Russia's ruble climbed for a third day, advancing 0.4 per cent and South Africa's rand was up 0.6 per cent.

The yen strengthened 0.2 per cent. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, declined 0.2 per cent following a 0.2 per cent drop in the last session.

A measure of volatility in the pound versus the dollar covering the period when the result of the referendum on European Union membership will be known jumped to its highest level in six years. The poundwas little changed.

World equities were up 0.2 per cent, rising for a third day after the MSCI All-Country World Index added 2 per cent in the previous two sessions.

The Stoxx 600 were little changed after its biggest two-day jump in three months. Futures on the S&P 500 were also little changed.

ArcelorMittal, Anglo American Plc, Antofagasta Plc and BHP Billiton Ltd. rose more than 3.4 per cent, helping lead gains among commodity producers. European banks fell, with Banco Popular Espanol SA tumbling 24 per cent after selling new shares. With a 0.7 per cent slide, Spain's benchmark IBEX 35 Index was the biggest decliner among western-European markets.

Lions Gate Entertainment Corp rallied 11 per cent in early New York trading and Dollar General Corp climbed 3.3 per cent after the companies reported quarterly earnings that beat expectations. Yahoo! Inc rebounded 1.4 per cent, following a 5.2 per cent plunge on Wednesday after people familiar with the matter said AT&T Inc made a bid for the company.

Pure Storage Inc slumped 16 per cent after saying operating margins dropped.

The MSCI Emerging Markets Index added 0.6 per cent.

Turkish markets fell amid signs of diminished powers for Deputy Prime Minister Mehmet Simsek in a cabinet reshuffle as President Recep Tayyip Erdogan extended his control of the government. Simsek is the last man standing in a team of officials credited for orchestrating Turkey's rapid growth years. The Borsa Istanbul 100 Index dropped 0.6 per cent. The lira slipped less than 0.2 per cent.

BLOOMBERG