17th Feb 2016 17:22
LONDON (Alliance News) - Oil prices rose on Wednesday, helping London's FTSE 100 to break back above the 6,000 mark, after Iran supported an initiative by Saudi Arabia and Russia to freeze production, without saying if it would hold back on its own supply levels.
According to the Reuters news agency, Iranian Oil Minister Bijan Zanganeh welcomed the initiative to set a "ceiling" as a first step toward stabilising the market, after meeting counterparts from Venezuela, Iraq and Qatar in Tehran on Wednesday.
However, Zanganeh did not explicitly say that Iran would keep its own output at January's levels, Reuters reported.
Earlier, an Iranian official had said that Iran would increase crude production until it reached levels before the country was hit by international sanctions. The remarks came after a conditional agreement to freeze oil production at January levels was reached by some of the world's biggest oil producing countries, including Russia and Saudi Arabia, in Doha on Tuesday.
"It comes as no surprise that Iran rebuked yesterday's proposal to 'freeze' crude production at January's levels, despite the oil minister claiming the nation supports efforts to stabilise crude prices. With the nation finally raising output following years of sanctions, there is little to no chance of the Iranians willingly hindering their return to pre-sanction levels," said IG's market analyst Joshua Mahony.
"Considering that the last production agreement between OPEC and non-OPEC members in 2001 saw Russia break the settlement by raising exports, the plan to freeze production is flawed on many levels," he added.
Crude oil prices rallied following Zanganeh's comments. Brent rose to a high of USD34.65 a barrel and at the London equities close settled at USD34.33, from USD32.28 at that point on Tuesday. West Texas Intermediate rose to a high of USD31.06 a barrel, and was at USD30.72 at the London equities close against USD29.04 the same stage on Tuesday. Gold was at USD1,212.00 an ounce, versus USD1,212.70 at the London close on Tuesday.
The moves in the oil price supported the FTSE 100, which closed up 2.9% at 6,030.32 points, extending the blue-chip index's run of gains to four consecutive sessions. The mid-cap FTSE 250 index ended up 2.9% at 16,156.33, with only six stocks in the red. The AIM All-Share rose 0.9% at 677.94.
European also ended broadly higher. The CAC 40 in Paris closed up 3.0% and the DAX 30 in Paris up 2.7%.
Key US indices were higher at the European equities close, with the Dow 30 was up 1.3%, the S&P 500 up 1.5% and the Nasdaq Composite up 1.8%.
In US economic news, industrial production increased by much more than anticipated in January, according to a report released by the Federal Reserve, with the rebound reflecting a sharp jump in utilities output.
The Fed said industrial production climbed by 0.9% in January after falling by a revised 0.7% in December. Economists had expected production to rise by 0.4% compared to the 0.4% drop originally reported for the previous month.
The rise in industrial production supported the dollar. At the close of London stock trading, the euro traded the dollar at USD1.1133, versus USD1.1142 at the close on Tuesday.
The pound traded the greenback at USD1.4328 at the London close, a touch higher than the USD1.4293 on Tuesday.
Earlier, data from the Office for National Statistics showed the UK unemployment rate remained at a decade low and employment levels hit a new record high, but earnings growth remained subdued at the end of 2015.
The unemployment rate came in at 5.1% in the three months to December, the same as in three months to November. Economists had forecast the rate to fall to 5.0%, but the rate remained at its lowest since early 2006. At the same time, the employment rate rose to 74.1%, the highest since comparable records began in 1971.
Average earnings including bonuses increased by 1.9% in the fourth quarter, in line with expectations, but slower than the 2.1% growth seen in the three months to November. Excluding bonuses, earnings climbed 2.0% compared with a year earlier, faster than expectations of a 1.8% rise.
Following the data, economists said wage growth needs to pick up before the Bank of England can consider raising its bank rate from the current 0.5% level.
On the London Stock Exchange, Glencore closed among the best performers in the FTSE 100, up 6.8%. The miner advanced its plan to reduce its burdensome debt pile by refinancing one of its substantial credit facilities earlier than expected, with banks appearing to give the miner a vote of confidence in the current commodities downturn.
Glencore said it has managed to refinance its USD8.45 billion revolving credit facility, which was due to expire in May, by replacing it with a smaller, USD7.70 billion facility, as the miner continues to take action in order to reduce its debt of nearly USD30.00 billion.
Alongside the material reduction to the facility, the refinancing pushes the expiration date from May this year to May 2018.
Other miners also closed higher, with Anglo American, up 11%, Antofagasta up 8.6% and BHP Billiton up 0.6%. The miners were lifted by China's commitment to supporting its flagging economy. China is a major customer for the blue-chip miners, given its demand for commodities.
A joint statement by the People's Bank of China, National Development and Reform Commission and Ministry of Finance said China plans to provide financial support for industries and reduce overcapacity. The document stated authorities will help firms to reduce financial costs and accelerate de-stocking. They also plan to adopt liquidity management tools.
Rolls-Royce Holdings closed up 6.9% after the Financial Times reported the engine maker is preparing to grant activist investor ValueAct a seat on its board, giving the US-based hedge fund influence over the direction of the business as it seeks to recover from a string of profit warnings
ValueAct is the largest shareholder in the company with a 10% stake and has met with other leading investors in the group in recent weeks to assuage concerns about its intentions should it be given a seat on the board.
Rolls-Royce told the FT no decision has yet been made on whether to support or reject ValueAct's request for a seat.
Electrocomponents was one of the best performers in the FTSE 250, up 7.7%, after HSBC upgraded the electronic and maintenance products distributor's stock to Buy from Hold. The bank said the current pressure on margins in the electronic distribution market is not structural, and the company has "levers to pull" to stabilise margins.
Still ahead in the economic calendars, investors await the release of the minutes from the Fed's January 26-27 meeting at 1900 GMT.
Having heard Fed Chair Janet Yellen's testimony on Capitol Hill last week, the market may view the Fed minutes as stale, but there will be interest in seeing how the Fed members viewed the torrid start to 2016.
Also ahead Wednesday are Japanese import, export and trade balances data at 2350 GMT.
On Thursday, the early focus will be on Chinese inflation data at 0130 GMT. Later, investors will look forward to the release of the minutes from the European Central Bank's monetary policy meeting in January at 1000 GMT, after French inflation data at 0745 GMT and eurozone current account data at 0900 GMT.
In the afternoon, US initial and continuing jobless claims are at 1330 GMT at the same time as the Philadelphia Fed manufacturing survey. The US Energy Information Administration releases crude oil stocks at 1600 GMT.
In the UK corporate calendar, there are full-year results from FTSE 100 energy company Centrica, defence contractor BAE Systems and can maker Rexam. FTSE 250 pharmaceuticals firm Invidior also reports full-year results while transport operator Go-Ahead Group reports interim results. Insurer Lancashire Holdings reports fourth-quarter earnings, while electrical retailer Darty issues a trading statement.
There is also a host of companies, including Royal Dutch Shell, AstraZeneca and GlaxoSmithKline, going ex-dividend meaning new buyers no longer qualify for dividend payments.
By Neil Thakrar; [email protected]; @NeilThakrar1
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