Shares in London and the rest of Europe moved higher this morning as the price of oil jumped 5 per cent following comments from the United Arab Emirates about the possibility of cutting production to balance the market.
The FTSE 100 index was 90 points, or 1.6 per cent higher, at 5,626, after closing 2.4 per cent lower at 5,536.97 yesterday as investors sold off banking and mining stocks amid fears over the state of the global economy.
But this morning commodity stocks led the recovery of the Footsie as the price of Brent Crude bounced back 5 per cent, rising again above $30 a barrel after having fallen to a 12-year low yesterday.
Oil slip: Brent crude has jumped 5 per cent today after having fallen below $30 to a 12-year low yesterday
The rebound in oil prices follows comments from the UAE energy minister Suhail bin Mohammed al-Mazrouei, who last night said that he was willing to talk with other oil exporters about cutting output.
The UAE dominates, after Saudi Arabia, the OPEC cartel, the organisation of countries that export oil. Analysts, however, believe it is unlikely that the oil exporters will actually agree to cut production and that therefore oversupply will continue to keep prices low.
Jasper Lawler, market analyst at CMC Markets, said: 'European markets have seen a welcome return to positive territory on Friday morning. It’s a dead cat bounce led by basic resource, oil and financial sectors which have seen the most punishment this week. It’s not to say today’s move higher can’t be sustained, it’s well overdue, but for now the groundwork it’s built on is a little shaky.
'The catalyst for the move higher in the energy sector has been jump in the price of oil overnight when rumours surfaced that OPEC was ready to discuss a production cut. An output cut would almost certainly be a game-changer for short term oil prices.
'The reason it remains unlikely is that the resulting higher prices would encourage more shale oil production which could eventually add to the supply glut and bring prices back down.'
Nevertheless, commodity stocks rose this morning, with Glencore nearly 6 per cent higher, Anglo American up 5 per cent and BP up 3 per cent. Bank stocks also rebounded today, with Standard Chartered up 7 per cent and Lloyds and RBS up 2.5 per cent.
Rolls Royce was the top riser on the FTSE 100 after slashing its dividend by a half in response to lower profits. It is being seen by shareholders as more favourable than shares getting diluted even more with a rights issue.
The price of oil fell to 12-year lows yesterday amid global growth fears. Record US supply figures, the prospects of weaker demand, and a forecast by Goldman Sachs that the price will stay low for the rest of this year all helped push the price down.
Brent crude oil has fallen 75 per cent from $115 a barrel in June 2014 to below $30 yesterday. It fell as low as $27 last month, while the futures market predicts prices will stay around $35 until the end of the year.
It was reported yesterday that Opec producer Iran has undercut oil from Saudi Arabia as it hopes to win more customers after sanctions were recently lifted.
Bjarne Schieldrop, chief commodity analyst at SEB in Oslo, said: ‘There’s a price fight within Opec for Asian market share.’
Oil cartel: UAE energy minister Suhail bin Mohammed al-Mazrouei last night said that he was willing to talk with other oil exporters about cutting output
Tom Pugh, commodities economist at Capital Economics, said: ‘The probability of a “lower for longer” scenario, where prices remain around current levels until at least the end of the year, remains high as producers continue to defy pressure to cut output.’
Meanwhile, European markets also opened higher this morning, with Germany's DAX up 1.5 per cent at 8,887 in morning deals and France's CAC 40 1.7 per cent higher at 3,963.
Overnight US stocks slumped again, with the Dow Jones Industrial Average dropping over 250 points unsettled by testimony this week from Federal Reserve boss Janet Yellen which highlighted worries about the impact of the global financial turmoil on the economy but kept alive expectations for further US rate hikes.
Asian shares fell for a sixth straight session today as concerns about the health of European banks further threatened a global economy already under strain from falling oil prices and slowdowns in China and other emerging markets.
The price of gold, which yesterday rose to its highest in a year as investors piled into safe havens, was lower at $1,238 today.
CMC Market's Lawler said: 'Yesterday’s move in gold was extreme and may have marked a short term blow-off top. Though sentiment appears to have materially shifted away from what was a consensus belief for a fall below $1000 per oz.'
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