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Oil slumps to nearly 6-year low; QE speculation supports European stocks
[LONDON] Oil prices slumped on Monday to nearly 6-year lows under US$48 (S$64) per barrel, hurting the energy sector, but eurozone stock markets pushed higher on stimulus hopes.
Brent crude for February delivery collapsed to US$47.18 - the lowest since late April 2009 - before recovering slightly to US$47.57. US benchmark West Texas Intermediate (WTI) for February hit a similar trough at US$45.90 a barrel.
The latest heavy falls came after US investment bank Goldman Sachs cut its price outlook as a glut in global crude supply persists.
"Oil was once more 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.
"At this point it's really just panic selling out of fear of how low oil prices could go," as the fundamental reasons for the decline are well known, said market analyst Jasper Lawler at CMC Markets UK.
Global oil prices have more than halved since June, dented also by demand jitters arising from the faltering world economy.
Eurozone equities were however buoyed Monday by persistent hopes of quantitative easing (QE) stimulus from the European Central Bank, dealers said.
Frankfurt's DAX 30 per cent climbed 1.38 per cent to close at 9,781.9 points and the CAC 40 in Paris gained 1.18 per cent to 4,228.24.
Milan rose 0.95 per cent and Madrid added 0.81 per cent.
London's benchmark FTSE 100 index ended the day essentially flat at 6,502.14 points, as energy company shares were punished by the oil prices.
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.
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 now has 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.
Wall Street stocks slid Monday as many energy equities sank on the plunging oil prices.
The Dow Jones Industrial Average shed 0.52 per cent to stand at 17,645.53 points in midday trading.
The broad-based S&P 500 dropped 0.62 per cent to 2,032.21, while the tech-rich Nasdaq Composite Index fell 0.82 per cent to 4,665.27.
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 on Sunday that it has agreed to buy US rival NPS Pharmaceuticals for US$5.2 billion.
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.
Shire stock dropped 0.84 per cent to close at 4,701.00 pence.
"Not only should this acquisition boost the company's operational strength but will also help ward off any other lingering suitors," said IG analyst Alastair McCaig.
In foreign exchange on Monday, the euro declined to US$1.1828, from US$1.1842 late on Friday in New York.
On the London Bullion Market, gold rose to US$1,226.50 an ounce from US$1,217.75 on Friday.