July 20, 2012
AP Business Writer
LONDON — Hopes that the OPEC oil cartel will raise production to offset the shortfall from Libya pushed oil prices sharply lower Tuesday, shoring up confidence in stock markets.
Oil prices have dropped back from Monday’s 30-month highs after some OPEC oil ministers said they were considering how to respond to the recent weeks’ spike in prices.
That has raised hopes that Kuwait and the United Arab Emirates could join Saudi Arabia in boosting output to make up for the drop in Libya, which produces nearly 2 percent of the world’s daily oil.
Although Gulf oil ministers said no decision has yet been made to call an emergency meeting, the possibility put a lid on oil prices Tuesday.
By midafternoon London time, the benchmark oil contract on the New York Mercantile Exchange was down $1.32 at $104.12 a barrel, while Brent crude in London fell $2.39 at $112.15 a barrel, down around $4 on Monday’s high.
Over the past few weeks, oil prices and stocks have been linked more closely than usual.
Stocks are a leading indicator of perceptions for economic expansion and the vagaries of the oil price affect perceptions about the state of the global recovery.
In Europe, the FTSE 100 index of leading British shares was down 0.5 percent at 5,947 while France’s CAC-40 was flat at 3,990. Germany’s DAX was 0.4 percent lower at 7,132.
Europe’s stock markets had been trading even lower before the drop in oil prices, which also helped Wall Street get off to a bright start.
In the U.S., the Dow Jones industrial average was 0.5 percent higher at 12,150 soon after the open while the broader Standard & Poor’s 500 index rose 0.5 percent to 1,317.
Analysts say developments in North Africa and the Middle East will continue to be the main point of interest in the markets this week, especially as the amount of scheduled economic news drops back from last week.
“A lack of significant data releases leave geopolitical tensions as the driver of markets for the moment,” said Chris Walker, an analyst at UBS.
The big concern is that if countries like Saudi Arabia experience an uprising on the scale of those already seen in Tunisia, Egypt and Libya, then oil could rise as high as $200 a barrel. That would be a nightmare scenario for the world economy, as it would stoke inflationary pressures and at the same time dampen growth.
In the currency markets, the euro gave up some recent gains, trading 0.6 percent lower on the day at $1.3882.
Europe’s single currency pushed up above $1.40 Monday in the wake of expectations that the European Central Bank will lift interest rates next month. That perception stands in marked contrast with the U.S. Federal Reserve, which is not expected to tighten policy anytime soon.
Vassili Serebriakov, a currency strategist at Wells Fargo Bank, said the euro’s rally may have “gone too far, too fast” and that it’s retreat Tuesday may be a “belated reaction” to Monday’s credit rating downgrade of Greece from Moody’s.
Earlier in Asia, Japan’s benchmark 225 stock average added 0.2 percent to 10,525.19, while Hong Kong’s Hang Seng rose 1.7 percent to 23,711.70. Mainland Chinese shares edged higher — the Shanghai benchmark gained 0.1 percent to 2,999.94, while the Shenzhen Composite Index of China’s smaller, second exchange added 0.3 percent to 1,307.71.