Fading expectations OPEC would cut production when it met on Thursday sent oil prices tumbling to a four-year low, while a rally in world stocks paused for Thanksgiving in the United States.
Gulf oil producers, led by Saudi Arabia, were expected to argue at OPEC’s meeting in Vienna against a cut in output, despite a slump in prices of more than 30 percent since June.
OPEC sources told Reuters action was unlikely, and Brent oil dropped by more than $2 at one point to less than $76 a barrel for the first time since September 2010.
“I think in terms of the big global economy picture, a lower oil price is a force for the good, and the meeting today is really about whether we get an extension of the move or whether we get a reversal,” said National Australia Bank strategist Gavin Friend.
Europe’s stock markets rose 0.2 percent, after Wednesday’s signal from the European Central Bank that it was closer to government bond buying and another record finish for Wall Street’s S&P 500.
The case for ECB action was underlined when Spain reported consumer prices fell more than expected and weak German HICP signaled another decline in euro zone inflation was likely on Friday. Lending to euro zone households and companies also fell again.
Speaking in Finland, ECB head Mario Draghi said the euro zone needs a “comprehensive strategy” including reforms by governments to get it back on track. Last week, Draghi in effect backed U.S.-style quantitative easing,
The comments and the data lowered the euro to $1.2463 and triggered record-low bond yields for the euro zone’s biggest economies. France’s 10-year yields dropped below 1 percent for the first time. [GVD/EUR]
Most currency market action, however, centered on the slide in oil. Oil-rich Norway’s crown hit a three-week trough of 8.5693 crowns per euro, Russia’s rouble took another dive and Nigeria’s naira still felt the effects of an 8 percent devaluation on Tuesday.
OPEC WATCH
The slump in oil has made OPEC’s meeting its most closely watched in decades. Besides pushing down inflation in places like Europe that are already close to deflation, falling oil prices are also hurting the economies and financial markets of many producer countries.
Decisions from the meeting will be announced at a news conference around 1500 GMT, if the talks end by then. Before the meeting, Iraqi oil minister Abel Abdel Mehdi said he saw a floor for oil prices at between $65 and $70 a barrel. Algeria and Venezuela said they were willing to cut output.
Ealier, MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent. Shanghai shares hit a three-year high, extending a rally that began after China cut interest rates last week. They are up 8.2 percent so far this month.
“The rate cut clearly showed the Chinese authorities are very much keen to support the economy. So even though Chinese economic data has been pretty weak, investors are convinced that there will be no hard landing,” said Naoki Tashiro, the president of TS China Research.
Japan’s Nikkei shed 0.8 percent as the yen recovered against the dollar. The index has gained 5.1 percent so far this month, becoming the second-best performing market in the region after China. The Bank of Japan also eased policy at the end of October.
The dollar fetched 117.54 yen, off last week’s seven-year high of 118.98 yen.
Gold dipped for a second session, holding below $1,200 an ounce, as outflows resumed from the top bullion exchange-traded fund. A referendum in Switzerland on Sunday also kept the market cautious: a ‘yes’ vote would force the Swiss central bank to buy about 1,500 tonnes of gold in coming years, analysts said.
Trading was subdued in many markets because of the Thanksgiving holiday in the United States.
REUTERS
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