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Oil prices plummet to 5.5-year lows; stocks rise

Monday, January 12, 2015 - 21:42
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Oil prices slumped on Monday to fresh 5.5-year lows under US$49 per barrel, hurting the energy sector, but European stock markets pushed higher on eurozone stimulus hopes.

[LONDON] Oil prices slumped on Monday to fresh 5.5-year lows under US$49 per barrel, hurting the energy sector, but European stock markets pushed higher on eurozone stimulus hopes.

Brent crude for February delivery collapsed to US$48.45 - the lowest since late April 2009 - and US benchmark West Texas Intermediate (WTI) for February hit a similar trough at US$47.06 a barrel.

The latest heavy falls were sparked by worries over the ongoing global crude supply glut, and came after US investment bank Goldman Sachs cut its price outlook.

"Oil was once more was the recipient of dismal data as Goldman Sachs downgraded its forecasts for the commodity, from an average price of US$83 per barrel in 2015 to US$50," said Spreadex analyst Connor Campbell.

"Brent crude greeted this news by dropping to new five-and-a-half-year lows; the confirmation of a bleak future for the commodity will see these prices linger for a long time yet." Global oil prices have more than halved since June, dented also by demand jitters arising from the faltering world economy.

European equities were however buoyed Monday by persistent hopes of quantitative easing (QE) stimulus from the European Central Bank, dealers said.

In early afternoon deals, London's benchmark FTSE 100 index added 0.28 per cent to 6,519.30 points, Frankfurt's DAX 30 won 1.41 per cent to 9,784.70 points and the CAC 40 in Paris climbed 1.39 per cent to 4,237.10.

Market expectations are growing that ECB chief Mario Draghi could decide to implement QE, or bond-buying, in order to combat deflation in the 19-nation eurozone.

"Some form of quantitative easing (QE) is clearly on the table," noted economist Neil MacKinnon at Russian financial services group VTB Capital.

Mr Draghi had stated earlier this month that the ECB could launch a QE programme of purchasing government bonds to protect the eurozone from deflation.

Some analysts believe the ECB as now having little choice to do so at its next meeting on January 22, as data showed last week that eurozone consumer prices sank 0.2 per cent last month, in the first fall in five years.

Deflation is defined as an extended period of falling prices where consumers begin to put off purchases in expectation they will fall further, sparking a damaging cycle of falling production, employment and prices.

"With plunging oil prices, Europe actually in deflation and declining inflation rates across the world, the spectre of a deflationary spiral is certainly a possibility," warned London Capital Group dealer Jonathan Sudaria.

Elsewhere, most Asian stock markets also retreated after a sell-off in New York at the end of last week in response to data showing weak US wage growth.

The news on wages, which overshadowed another forecast-beating rise in job creation, pushed the dollar down against the euro because it complicates the Federal Reserve's plans to raise interest rates.

Meanwhile, London investors digested news of an impressive takeover in the drugs sector.

British drugmaker Shire revealed Sunday that it has agreed to buy US rival NPS Pharmaceuticals for US$5.2 billion (4.4 billion euros).

The deal, which has been agreed by the management of both companies, comes two months after the collapse of US drugs giant AbbVie's US$54-billion takeover of Shire.

In early afternoon trade, Shire stock dropped 0.61 per cent to 4,712 pence.

"Shire has started 2015 in a spritely fashion announcing the acquisition of US biotech firm NPS Pharmaceuticals," said IG analyst Alastair McCaig.

"Not only should this acquisition boost the company's operational strength but will also help ward off any other lingering suitors." In foreign exchange on Monday, the euro declined to US$1.1800, from US$1.1842 late on Friday in New York.

On the London Bullion Market, gold edged up to US$1,222 an ounce from US$1,217.75 on Friday.

AFP