Oil tumbles as output cut looks elusive, shares slip

Reuters News
Posted: Nov 27, 2016 7:31 PM

By Hideyuki Sano

TOKYO (Reuters) - Oil prices tumbled on Monday on worries that producer countries may not be agree on a deal to cut output, pressuring U.S. stock futures and Asian shares.

Brent crude futures fell 1.9 percent in early Monday trade to $46.29 <LCOc1> a barrel, after having slipped 3.6 percent on Friday on rising doubts over whether the Organization of the Petroleum Exporting Countries will reach an output deal.

Saudi Arabia said on Friday it will not attend talks on Monday with non-OPEC producers to discuss supply cuts.

As lower oil prices reduce inflationary pressure, they sapped momentum for a sell-off in U.S. Treasuries and a rally in the dollar, the market's favorite play since the U.S. election on the view that President-elect Donald Trump's policies will likely lift inflation.

U.S. stock futures <ESc1> slipped 0.2 percent in early trade while Japan's Nikkei <.N225> fell 0.5 percent.

Shares in Australia <.AXJO> and South Korea <.KS11> also dropped about 0.3 percent, though MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> as flat as a weaker dollar offset losses in local share prices.

"Oil prices have fallen considerably on worries about the deal. That would pressure energy shares, and could hit the entire stock markets. Given their rally in recent days, it's no surprise to see some adjustment," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Saudi Arabia's energy minister Khalid al-Falih said on Sunday that he believed the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

His comments raised worries that preliminary agreement reached in September that OPEC countries would reduce its production to between 32.5 million and 33 million barrels per day may fall apart.

OPEC oil ministers meet on Wednesday in an effort to finalize that deal; OPEC also wants non-OPEC producers such as Russia to support the intervention by curbing their output.

Wall Street's three main indexes <.DJI> <.SPX> <.IXIC> had closed at record highs on Friday, having risen for three weeks in a row.

Softer oil prices helped to underpin U.S. bonds, which had been bettered by expectations that Trump's policies will increase spending and debt as well as spur growth and inflation, all of which would erode the value of bonds.

The yield on 10-year U.S. Treasuries <US10YT=RR> dipped about 2 basis points to 2.348 percent, off its 16-month high of 2.417 percent touched on Thursday.

That in turn prompted players to take profits in the dollar, which had risen on expectations higher U.S. bond yields would encourage investors to put more money in the dollar assets.

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The dollar's index against a basket of six major currencies <.DXY> <=USD> printed at 101.30, slipping 0.2 percent on day and off its 13 1/2-year high of 102.05 touched on Thursday.

Against the yen, the dollar dropped 0.5 percent to 112.59 yen <JPY=>, slipping further from its eight-month high of 113.90 set on Friday.

The euro <EUR=> traded at $1.0600, up 0.3 percent and off its near one-year low of $1.0518 touched on Thursday.

The single currency has so far shown limited reaction to the French conservatives' presidential primaries on Sunday.

Former Prime Minister Francois Fillon, a socially conservative free-marketeer, won the run-off, setting up a likely showdown next year with far-right leader Marine Le Pen that the pollsters expect him to win.

Gold <XAU=> bounced back to $1,187.0 per ounce from Friday's low $1,171.5, which was its lowest level since early February.

(Editing by Kim Coghill)