Markets can ride out oil’s downslide

2011-08-06 09:22

Brent crude rose to $108 a barrel on Friday, rebounding from the lowest since June, supported by better-than-expected news on US jobs that may ease concern about the health of the world’s largest ­economy and oil ­consumer.

Prices initially rallied after the ­Labor Department said US payrolls increased by 117?000 in July, above ­expectations.

Crude rose from its session low on reports of an explosion on an oil pipeline in Iran.

Investors across the markets had been waiting for the US employment data.

A day after US stocks suffered their worst sell-off since the middle of the financial crisis in early 2009, many had expected a bearish jobs report.

More than $2.5 trillion (more than R17?trillion) have been wiped off the value of world stocks this week on mounting concerns the global ­economy is heading toward another recession and Italy and Spain are ­being engulfed by the eurozone ­sovereign debt crisis.

The sum wiped off the MSCI All-Country World Index is almost equivalent to the size of the entire French economy.

The MSCI All-Country World Index is down 8.6% this week, on track for its biggest weekly percentage fall since November 2008.

Brent was up 56 cents at $107.81 a barrel on Friday afternoon, having earlier fallen to $104.30, the lowest since June 27, on concern demand will weaken as US growth falters and ­Europe’s debt crisis worsens. It fell ­almost $6 in the previous session.

“A quick glance at the latest jobs ­report shows it is positive, better than expected. But whether the market will be able to stem its downslide after the recent stream of negative economic data remains to be seen,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

US crude was down 21 cents at $86.42. The US benchmark earlier plunged as low as $82.87, the lowest since November 26, after sliding ­almost 6% on Thursday.

The Iranian pipeline exploded in the early hours on Friday and shut flows of up to 40?000 barrels a day, an ­Iranian oil ministry official told ­Reuters. Iran is the second-largest Opec producer.

“It’s a bit wild to say the least,” said Rob Montefusco, a trader at Sucden Financial.

“It was carnage first thing this morning, and then we had this explosion in Iran, which has sent it straight back up again.”

Other markets rebounded from earlier declines on the US jobs data.
­
European shares briefly turned ­positive after hitting a 14-month low.

Some investors had warned that even a strong jobs report would not be enough to allay concerns about the oil demand outlook.

“Even if today’s employment ­numbers are better than expected, the markets probably need much more to recover,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd, before the jobs report was ­released.

“People should be very nervous,” Emori said. “And they should think that oil demand will be less than ­expectations.”

The leaders of Germany, France and Spain held crisis talks about Europe’s spiralling debt crisis on Friday after China and Japan called for global ­policy cooperation following the ­market rout.

There are increasing signs oil ­demand is being eroded, in part ­because of high prices.

Barclays Capital, one of the most bullish on oil prices, has trimmed its global demand growth forecast for this year.

Commodity benchmark the Reuters-Jefferies CRB index is down more than 4% for the week, its biggest drop since losing nearly 9% in May’s across-the-board slide, also fuelled by global growth concerns.

Shares in Asia fell as much as 5% on Friday, the day after the worst ­sell-off on Wall Street since the global financial crisis.

“The US economy appears headed for a double-dip recession,” said ­Monty Guild, chief executive of Guild Investment Management.

“Even though we expect weak ­economic activity will lead to more money printing from central banks, the markets are going through a ­rugged period, which makes us want to reduce our exposure to oil,” Guild said.

Reserve Bank deputy governor ­Daniel Mminele said it was too early to say how uncertainty in global markets would affect South ­Africa and how policymakers should ­respond.


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