Home Business Oil Prices Sink Below $59/Barrel

Oil Prices Sink Below $59/Barrel

by AFP
Ali Al-Saadi—AFP

Ali Al-Saadi—AFP

Global tensions mount as OPEC maintains decision to sustain output despite lack of demand.

Oil suffered another dizzying plunge on Tuesday, with Brent crude sliding to a five-year low under $59 as markets were rocked by shrinking Chinese manufacturing output and turmoil in Russia.

However European stocks jumped sharply higher and Wall Street was also in positive territory after top U.S. diplomat John Kerry held out the prospect for a quick lifting of U.S. and EU sanctions on Russia if Putin reverses course in Ukraine.

London’s benchmark contract Brent North Sea crude for January had slumped as far as $58.50 per barrel—the lowest level since May 2009, but it climbed back to $59.83 in late London. That was still down $1.23 from Monday’s close. New York’s West Texas Intermediate (WTI) for January hit a similar five-year low at $53.60, but climbed back to a 10-cent loss at $55.79 in midday trading.

Oil prices have plummeted by almost 50 percent since June, with losses picking up after OPEC’s recent decision to hold its output ceiling in an oversupplied market. Sentiment was also hit by the Russian central bank’s shock move to raise interest rates to 17 percent, but which failed to arrest the slide of the ruble.

The Russian ruble crashed to new record lows Tuesday, losing some 20 percent in value by the afternoon despite drastic overnight measures by the central bank to hike the key rate. A senior central banker called the situation “critical” and pledged further actions to stabilize the ruble, which has now lost some 60 percent of its value this year as it hit 80 to the dollar and 100 to the euro on the Moscow Exchange.

The oil-dependent Russian economy has also been struggling with EU and U.S. sanctions over Russia’s annexation of Crimea and support for insurgents in eastern Ukraine, with the Bank of Russia warning the economy could contract by nearly 5 percent next year.

“The combined effects of slumping oil, the Russian Central Bank’s interest rate hike and falling output from China have all come together to deliver a triple blow to the markets,” said ETX Capital analyst Daniel Sugarman. China’s manufacturing activity worsened in December with HSBC’s purchasing managers’ index (PMI) hitting a seven-month low at 49.5 percent, below the break-even point dividing expansion and contraction, signaling weakness in the world’s second-largest economy and top energy consumer. “Lower output from China means less of a need for oil, while as a primary oil producer Russia really feels the pain of lower oil prices, compounded by the sanctions imposed earlier this year,” said Sugarman.

Stock markets in the energy-rich Gulf states were hit hard as oil resumed its fall, with both the Dubai and the Saudi Tadawul All-Shares Index, the largest in the Arab world, falling 7.3 percent. Since OPEC decided to maintain its production unchanged on Nov. 27 and oil prices began their dive the Dubai exchange has fallen 31.5 percent and the Saudi index 19.2 percent. Asian stock markets mostly fell, although Shanghai stocks however jumped 2.31 percent on hopes the government will introduce new measures to spur economic growth. Hong Kong equities shed 1.55 percent, Sydney fell 0.65 percent and Tokyo dived 2.01 percent in value.

After a day of volatile trading Europe’s main stock markets closed sharply higher Tuesday following Kerry’s remarks, with London’s benchmark FTSE-100 index rising to 2.41 percent to 6,331.83 points. The Paris CAC 40 rose 2.19 percent to 4,093.20 points and Frankfurt’s DAX 30 gained 2.46 percent to 9,563.89 points. Madrid added 1.8 percent and Milan jumped 3.27 percent.

“Shares in Europe saw a mild recovery on Tuesday shaking off concerns of further oil price depreciation thanks to a record trade surplus for the Eurozone as well as an improved manufacturing and services industry outlook,” said CMC Markets U.K. analyst Jasper Lawler.

German investment sentiment rose sharply in December after a rebound the previous month, driven by a weak euro and plunging oil prices, a survey showed Tuesday. The investor confidence index, calculated by the ZEW economic institute, jumped by 23.4 points in December, after rising for the first time this year in November, ZEW said in a statement.

A weaker euro also helped propel the eurozone’s trade surplus to 24 billion euros in October. In addition, a key survey showed that business activity in the eurozone accelerated slightly in December.

Markit Economics said its Composite Purchasing Managers Output Index for the 18-country zone that uses the single currency rose marginally to 51.7 points in December from 51.1 points in November. That helped lift the euro to $1.250 from $1.2435 late Monday, also propelled by upbeat eurozone and German data on the eve of the U.S. Federal Reserve’s latest monetary policy decision.

Meanwhile in the United States, stocks moved higher in midday trading, with the Dow Jones Industrial Average climbing 1.17 percent to 17,381.04 points. The broad-based S&P 500 added 0.27 percent to 2,007.76, while the tech-rich Nasdaq Composite Index rose 0.68 percent to 4,636.57.

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