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US oil gushes above US$50 for first time since June

Friday, October 7, 2016 - 07:21
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US oil rose above US$50 a barrel in New York on Thursday for the first time since June, lifting energy shares, but sharp falls in Twitter and Wal-Mart spoiled the party for Wall Street.

[LONDON] US oil rose above US$50 a barrel in New York on Thursday for the first time since June, lifting energy shares, but sharp falls in Twitter and Wal-Mart spoiled the party for Wall Street.

Overshadowing strength in the key commodity was anticipation ahead of Friday's US jobs report, likely to give clues as to the Federal Reserves next rate move.

Dealers attributed oil's success in smashing the key US$50 resistance point to a lingering reaction to a surprising drawdown in US oil stocks, reported Wednesday, as well as a cautious belief that the Opec cartel will come through on a promised supply cut.

"Oil prices continued to gain strength with WTI crude gaining a foothold above US$50 per barrel after this week's surprise US inventory drawdown added to bullish sentiment built up after last week's Opec decision to cut output," said Jasper Lawler, analyst at CMC Markets.

The US$50 mark is crucial as it makes drilling cost-effective for many companies.

Shares in oil companies Halliburton, BP, Shell, Exxon Mobil and Chevron all rose.

But some analysts doubted the oil rally's staying power.

"These gains now appear to be running on empty," said Craig Erlam, an analyst at Oanda, warning that Opec may never harden up its "loose deal", and that the oil market remains oversupplied.

European equities meanwhile pulled back slightly, extending Wednesday's losses seen on talk that the European Central Bank may rein in its massive stimulation programme, known as quantitative easing.

However minutes from the latest ECB meeting, published on Thursday, failed to point to any such policy change. Analysts also poured cold water on the idea, saying that no 'tapering' should be expected until next year at the earliest.

In fact, said Capital Economics, the ECB is "more likely to extend, than taper, its asset purchases".

Still, equity markets failed to recoup their losses, instead "treading cautiously ahead of tomorrow's key nonfarm payroll report", analysts at Schwab observed.

In London, an EasyJet profit warning caused the stock to slump and weighed on the entire travel sector.

Another round of positive data out of Washington, this time an unexpected drop in first-time unemployment benefit claims, reinforced views that the world's top economy is back on track and able to deal with the impact of tighter borrowing costs.

The dollar rose again on rate hike expectations, in turn pushing the British pound to a fresh 31-year low.

Meanwhile shares in Twitter tanked on a report that Google and other tech giants Apple and Disney will not bid for the company.

Wal-Mart Stores stock lost ground after the company projected that fiscal 2018 earnings would be flat amid a period of heavy investments in e-commerce and increased staff pay in the US.

AFP