Brent futures trade range-bound ahead of OPEC meeting

Tuesday, November 25, 2014

Front month Brent futures spent much of today’s session trading below $80/bbl, only managing to recover ground above this level towards the afternoon. Prices still remain within the range that has dominated trading activity throughout the second half of the month and we do not expect any protracted moves either side in the run up to the eagerly anticipated OPEC meeting on Thursday. Talks of production cuts among members have increased in volume in recent sessions, however, front month Brent futures continue to test tentative support levels on the downside as speculation of a production cut remains just that.

In the latest sign that the precipitous decline in crude oil prices has had far reaching implications, shares in Petrofac, the oilfield services group faced further selling pressure today as intraday losses extended 5.0% lower before prices firmed back towards the open. The continuation of downward pressure comes after yesterday’s 26% plunge after the company warned investors that the recent weakness in oil prices and difficulties with North Sea projects were likely to see net profits revised down 25% over the coming year.

European shares extended gains further on Tuesday, building on solid support offered by yesterday’s gains as investors were encouraged by reduced oil price inflation and optimistic ahead of OPEC’s meeting later this week. The CAC and DAX extended gains towards multi-month highs while the UK’s benchmark index continued its steady march higher after yesterday’s brief pause on hitting resistance at Friday’s close towards 6,750.

Market optimism was refreshed after the final German Q3 GDP reading came in as expected, growing at a seasonally adjusted 0.1% q/q and with hints of further support from central bankers in China and Europe, upward momentum for further gains remains intact. German private consumption data solidified the positive market undertones, increasing 0.7% q/q during the third quarter against expectations of a modest 0.3% rise suggesting the outlook for the coming year is steadily improving. The latest update from China came in the form of a comment from PBOC official Chen Yulu, who stated that the central bank will hold off until further Q4 economic data is released before considering further rate cuts. With Mario Draghi also signalling at further monetary easing in Europe investors have plenty of support for further gains in risk assets.

The positive mood extended to the US trading session with a positive surprise for the second reading of US Q3 GDP, which grew at an annualised rate of 3.9% q/q against expectations of 3.3% q/q. Despite the encouraging data, at the time of writing both the S&P and DJIA were trading marginally lower, as both indices tested level around previous record highs. 

Brent prices spark a sell-off in related stocks, with Petrofac under significant pressure

PFC LN Equity Petrofac Ltd Da 2014 11 25 13 16 45

Optimism returns to the eurozone on stable German data

GRGDPPGQ Index Germany GDP Chai 2014 11 25 13 19 29

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