European markets end higher as oil surges
As the FTSE 100 hit a record closing high amid the oil price rise, other European markets were also in positive territory. On the UK, Laith Khalaf, senior analyst at Hargreaves Lansdown, said:
A stronger dollar, a rising oil price and the postponement of an interest rate rise can all claim some credit for the recent strong showing from the stock market.
The final scores showed:
- The FTSE 100 finished up 53.77 points or 0.7% at 7787.97
- Germany’s Dax rose 0.91% to 13,114.61
- France’s Cac climbed 0.98% to 5621.92
- Italy’s FTSE MIB added 0.29% to 23,801.99
- Spain’s Ibex ended up 1.04% at 10,216.4
But on Wall Street the Dow Jones Industrial Average is currently up 16 points or 0.07%.
And Brent crude continues to hold onto much of its gains, thanks to the threat of reduced supplies from Iran after the US withdrew from the nuclear deal. It is up 1.27% at $80.29 a barrel.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
FTSE 100 hits new closing high
The rise in the oil price has helped push the FTSE 100 to a new closing high.
The UK’s leading index has been in fairly positive mood recently, along with other markets, after hopes that the US and China could resolve their trade differences. The continuing strength of the dollar against the pound has also been supporting the market, given the FTSE 100 is packed full of overseas earners which benefit when sterling is weaker.
Brent’s surge to $80 has given the index its final push to a new record close of 7787.97, up 0.7%. However it is still just below the intra-day record of 7792.56 set on 12 January this year.
Meanwhile the FTSE 250 did hit a new peak, helped by the extraordinary jump in Ocado shares.
Fiona Cincotta, senior market analyst at City Index, also thinks Brent could hit $100 a barrel:
Fundamentally the price looks well supported here, OPEC are showing they are in no rush to end production cuts, Venezuela’s oil industry is collapsing under its economic and political crisis and US sanctions aimed at Iran’s oil industry are kicking in. Whilst US production is a constraint on the price, right now this is overshadowed by the Iran Venezuela shortfall.
Could oil go higher? Venezuela’s problems are unlikely to be resolved anytime soon and could be exasperated if the Trump aims sanctions at the troubled country following rigged and unfair elections; also if the US can get China to loosen energy ties with Iran, then regardless of increased US shale production, the price could close in on $100.
Brent crude is currently up 0.86% at $79.96 a barrel, having earlier risen as high as $80.18.
And the FTSE 100’s energy companies are benefiting from the rise and helping to lift the leading index close to its record high. It is up 0.4% at 7767, around 25 points below its peak. Connor Campbell, financial analyst at Spreadex, said:
It took a while, but the FTSE finally become receptive to Brent Crude’s latest rise, lifting the UK index that bit closer to a fresh all-time high.....Though not much has changed with Brent Crude – it is still dancing about the $80 per barrel mark – comments from Total CEO Patrick Pouyanne that the black stuff could hit $100 in the coming months if oil companies aren’t given waivers by the US to work in Iran helped boost BP and Shell, in turn lifting the FTSE higher.
My colleague Adam Vaughan has been looking at the reasons behind the surge in oil prices:
Another voice adding to those suggesting oil has much further to climb. Following news that Total will quit Iran unless it gets a waiver from the US, the boss of the French energy giant has predicted crude at $100 a barrel:
#BREAKING Total CEO says oil price could hit $100 'in coming months'
— AFP news agency (@AFP) May 17, 2018
Wall Street opens lower
Worries about the trade talks between the US and China, along with President Trump’s withdrawal from the Iranian nuclear deal, continue to unsettle US equity investors.
Add to that US bond yields hitting a new seven year high and a disappointing update from Cisco, and Wall Street has opened in negative territory. The Dow Jones Industrial Average is currently down 26 points or 0.1% while the S&P 500 and Nasdaq Composite slipped by similar amounts at the open.
Updated
Back with Iran and the US sanctions which have driven up the oil price to above $80 a barrel, and Europe is prepared to defend its businesses from the fallout. Reuters reports:
The European Union will stick to the Iran deal and the bloc’s leaders have mandated their Brussels-based executive to defend the interests of European companies dealing with Tehran from U.S. sanctions if needed, a top EU official said.
“On the Iran nuclear deal, we agreed unanimously that the EU will stay in the agreement as long as Iran remains fully committed to it. Additionally the Commission was given a green light to be ready to act whenever European interests are affected,” the chairman of a two-day EU leaders’ summit in the Bulgarian capital, Donald Tusk, told a news conference.
The head of the bloc’s executive European Commission, Jean-Claude Juncker, told the same conference that the EU was ready to start trade liberalisation talks with the United States in some areas if Washington gives permanent exemptions from aluminum and steel tariffs.
Over in the US, weekly jobless claims have risen by more than expected.
The number of Americans claiming unemployment benefit increased to 222,000 from 211,000 the previous week, higher than the forecast 215,000. But the four week average fell to 213,250 from 216,000, according to the Labor Department, the lowest level for this average since December 13, 1969 when it was 210,750.
Elsewhere in the markets, shares in online supermarket retailer Ocado have shot through the roof after it finally landed a major international deal.
Ocado has been promising a big overseas tie-up for literally years, and today it delivered thanks to an alliance with US grocer giant Kroger.
Kroger will used Ocado’s technology to upgrade its warehouse operations, automation, logistics and delivery route planning in the US. This should strengthen its hand in the battle against Amazon, as grocers look to automate their systems and use robots to speed up processes and cut costs.
Ocado’s shares have rocketed by up to 75% today, as traders bet that this deal is as transformation as Kroger claims. That drove its value up from around £3.7bn to £6bn, enough to get into the FTSE 100.
It’s a disaster for the hedge funds who have been short-selling Ocado’s shares, betting that it would fail to achieve international expansion.
As Neil Wilson of Markets.com explains, Ocado now seems to have real momentum.
Bagging a giant US retailer is a major coup for [Ocado CEO] Tim Steiner and as previously noted, we should see many more deals. Shares are priced for these deals to be coming thick and fast.
Peter Kiernan of the Economist Intelligence Unit say’s Total’s (likely) withdrawal from Iran shows that Donald Trump’s sanctions could have a serious impact on the Iranian economy.
Kiernan explains:
The announcement by Total that that it will leave South Pars 11, unless it is granted a waiver from US secondary sanctions, reflects the likelihood that European energy companies with exposure to the American market or financial system will be unwilling to risk US penalties by deciding to participate in Iran’s oil and gas sector.
Iran will seek alternative sources of investment, such as Chinese companies, to get the funds it requires to develop its energy sector instead, but Iran’s likely inability to attract major European companies going forward will be a setback.
The Total announcement also gives notice to the difficulties that European policymakers could face in the longer term as they try to keep Iran itself in the nuclear agreement. If investment in Iran does dry up and Iran’s oil exports are significantly cut, both due to US pressures, it will make Europe’s role in keeping the nuclear deal alive more problematic.
China could replace Total in Iran
China is poised to step in if France’s Total does indeed pull out of the Iranian South Pars 11 gas field project (as seems likely).
Iran’s oil minister, Bijan Namdar Zanganeh, has revealed that state-owned Chinese oil firm CNPC is waiting in the wings, if needed.
Zanganeh said:
“Total has said that if it doesn’t get an exemption from the United States to continue its work, it will begin to pull out of the deal.
If that happens, the Chinese firm CNPC will replace Total.”
Iran's oil minister says Chinese state-owned oil company CNPC is ready to replace Total on a major gas field project in Iran if the French energy giant pulls out: @AFP
— Dmitry Zaks (@dmitryzaksAFP) May 17, 2018
Given its strong rally over the last year, analysts are wondering how much higher oil could go.
Morgan Stanley have predicted that Brent will trade at $90 per barrel in 2020, thanks to increased demand for diesel (due to new anti-pollution rules on shipping) and jet fuel.
Bank of America Merrill Lynch is even more bullish. It estimates that oil could hit $100 per barrel next year, due to supply constrains from Iran (due to sanctions) and Venezuela (where political instability could hit supplies).
Francisco Blanch, head of commodities research at BAML, says:
“Looking into the next 18 months, we expect global oil supply and demand balances to tighten.”
US crude oil has also hit its highest level since 2014.
It’s up nearly 1% at over $72 per barrel, mirroring today’s rise in Brent crude (which is sourced from the North Sea)
US Crude Oil breaks out again - now above $72 a barrel. Price now up +70% in last 11 months. 3.5 year highs. pic.twitter.com/ib5yWWfeIB
— David Jones (@JonesTheMarkets) May 17, 2018
Rising oil prices are a boost to the world’s crude producers, but a blow to those countries who are net importers of energy.
For them, $80 per barrel oil means higher inflation, and could be bad for growth if consumers have less disposable income to spend once they’ve covered their fuel and energy costs.
Here’s some instant reaction:
As oil prices push through $80 a barrel - up 53% since September.
— Michael Hewson 🇬🇧 (@mhewson_CMC) May 17, 2018
Summer about to start, yet we're expected to believe that inflation will remain subdued, and consumer spending won't be affected?
Brent crude is now trading at over $80 per barrel for the first time in four years, after the US broke the #Iran nuclear deal and Total said it would likely withdraw from its South Pars commitments due to US sanctions pic.twitter.com/daedut3hV1
— Patrick Galey (@patrickgaley) May 17, 2018
#BrentCrude oil roses to $80 per barrel ( first time since Nov 2014).. big -ve for Indian equity markets & currency.. to weigh on inflation numbers and RBI monetary policy action.
— Shraddha Babla (@shraddha_babla) May 17, 2018
Oh look, U.S. foreign policy appears to be having the completely coincidental effect of driving oil prices up.
— Chamkaur Ghag (@chamkaurghag) May 17, 2018
Brent crude oil heads towards $80 per barrel as Total threatens to quit Iran - business livehttps://t.co/eMFFpKj5Rm
Brent hits $80 after Total's Iran threat
Newsflash: Brent crude has hit $80 per barrel for the first time since November 2014.
The news that Total is planning to withdaw from its large Iran gas field deal has pushed prices steadily higher this morning.
Brent hits $80 https://t.co/YwZw4AJFuz pic.twitter.com/46Zh4JUUZQ
— Bloomberg Markets (@markets) May 17, 2018
The price of a barrel of Brent crude has now gained more than 16% since early April, as traders anticipate supply shortages if geopolitical tensions in the Middle East continue to rise.
Norbert Ruecker, head of macro and commodity research at Julius Baer, says:
“Supply concerns are top of mind after the U.S. left the Iran nuclear deal. The geopolitical noise and escalation fears are here to stay.”
Updated
Now this is interesting.... Iranian state TV is reporting that a British consortium called Pergas has signed a deal to develop an oil field in the south of Iran.
Associated Press have the details:
The agreement is the first between Iran and a key Western ally of the United States since Washington last week announced it will pull out of the landmark 2015 nuclear deal between Iran and Western powers.
Managing Director of Pergas International Consortium Colin Rowley, and Bijan Alipour, managing director of National Iranian South Oil Co., signed a preliminary deed on the partnership in the presence of British Ambassador Rob Macaire in Tehran on Wednesday night.
The project, if the agreement turns into a contract, will require more than $1 billion to produce 200,000 barrels of crude oil per day during the next decade in the 55-year old Karanj oil filed.
But what about the prospect of US sanctions?
Well....Pergas is clear that its focus is on the “Eastern Hemisphere”, with projects in the Middle East, South East Asia and Africa. It must feel safe from Washington’s threat to ban foreign firms from accessing the entire US banking and financial system if they deal with Iran.
Total isn’t alone! Moller-Maersk, the world’s largest shipping firm is also planning to pull out of Iran.
Moller-Maersk’s CEO, Soren Skou, says it will withdraw because of the threat of sanctions from America on any company which maintains links with the Iranians.
Skou told Reuters:
“With the sanctions the Americans are to impose, you can’t do business in Iran if you also have business in the U.S., and we have that on a large scale.
“I don’t know the exact timing details, but I am certain that we’re also going to shut down (in Iran)”.
Maersk says U.S. sanctions make doing business in Iran impossible https://t.co/m5EfsJqpI9
— Reuters Business (@ReutersBiz) May 17, 2018
Skou was speaking after Moller-Maersk reported an “unsatisfactory” underlying loss of $239m in the last three months. It blamed the rising “geopolitical risks” and the threat of a trade war for driving down shipping rates.
Updated
Macron: Companies need protection against US sanctions
French president Emmanuel Macron has weighed in, calling on the European Union to protect companies who want to keep trading with Iran.
Speaking at an EU summit in Sofia, Bulgaria, Macron said that France backed a proposal for the EC to protect and compensate European companies hit by US sanctions.
Called ‘blocking sanctions’, they could provide a way for Europe to keep the Iran deal alive.
Asked about Total’s threat to quit Iran, Macron told reporters that multinational companies must make their own decisions - but smaller companies needed protection to keep operating in Iran if they want to.
“International companies with interests in many countries make their own choices according to their own interests. They should continue to have this freedom.”
But what is important is that companies and especially medium-sized companies which are perhaps less exposed to other markets, American or others, can make this choice freely.”
Brent is creeping higher, and has touched $76.62 per barrel.
Oil’s push to a new three and a half-year high threatens to keep inflation up, hitting households and eroding real wages:
Could cause #inflation to be stickier than expected in near term - #Oil hits highest since Nov 2014 as #Brent edges closer to $80 https://t.co/ekjES4ms5d
— Howard Archer (@HowardArcherUK) May 17, 2018
Oil is also getting a lift from new data showing that US inventories fell by 1.4 million barrels last week.
That suggests stronger demand for crude stocks - which should push prices higher.
#Oil heads back towards $80 (3rd time lucky? 🍀) after @EIAgov shows 1.4m bbl drop in crude stocks and any worries about the struggles of the physical markets are overtaken by OPEC/Iran #OOTT #moo 🐂🐂🐂 pic.twitter.com/ZTD0sEnPH6
— Amanda Cooper (@a_coops1) May 17, 2018
Best/worst performers -
— DailyFX Team Live (@DailyFXTeam) May 17, 2018
Commodities today:
Oil - US Crude: 0.4%
Oil - Brent Crude: 0.4%
Spot Gold: -0.1%
Spot Silver: -0.1% pic.twitter.com/fWXiwCsEy6
Why Total's threat matters
Total’s threat to quit its Iran gas project is significant because it shows that the whole Iranian nuclear deal could unravel.
As well as withdrawing from the agreement this month, president Trump declared that companies worldwide must stop doing business with Iran or risk US fines or other punishment.
If Total pulls out, other companies will be more reluctant to invest in Iran - a blow to President Hassan Rouhani’s hopes of attracting new investment.
Rouhani travelled to Davos in 2014 in an attempt to encourage international firms to invest in Iran; he had hope to attract $200bn of energy infrastructure investments by 2021.
Sanam Vakil, associate fellow at Chatham House, said Total’s announcement was “a bad sign, adding:
The EU can’t compel or really protect the private sector.
Bjarne Schieldrop, an oil analyst at SEB, told the Financial Times that it undermines Europe’s efforts to keep the Iran nuclear deal alive:
“Total’s action . . . backs up the idea that no one sees an easy solution here and that there is little expectation of US leniency,”
“Whatever the politicians in Europe are saying, the private companies are just pulling out and folding the cards.”
Updated
Introduction: Oil heads towards $80
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The oil price is heading towards $80 per barrel for the first time since 2014, as Donald Trump’s decision to impose sanctions on Iran continues to reverberate through the financial markets.
French energy giant Total announced it would withdraw from a Iranian gas deal before the end of the year, unless it gets a waiver.
In a statement last night, Total explained:
Total will not continue the SP11 (South Pars 11) project and will have to unwind all related operations before 4 November 2018, unless Total is granted a specific project waiver by US authorities with the support of the French and European authorities.
This looks like a blow to Europe’s hopes of keeping its current economic ties with Iran intact, following America’s withdrawal from the Iranian nuclear deal earlier this month.
The SP11 agreement was signed last July, making Total the first major Western energy company to invest in the Islamic Republic since sanctions were lifted in 2016.
Now, though, Total is worried that it would be sanctioned by the US authorities if it kept dealing with Iran. The potential penalties from Washington simply look unpalatable.
The news sent Brent crude jumping to $79.47, a three and a half-year high. This puts $80 in traders’ sights - and leaving motorists facing higher prices at the pumps.
Perfect timing for #ThrowbackThursday because we're headed back to the 80s. Brent is now just 60 cents short of crashing through 80 bucks. pic.twitter.com/BYTFcF7rkS
— David Ingles (@DavidInglesTV) May 17, 2018
Mihir Kapadia, CEO and founder of Sun Global Investments, agrees that geopolitical tensions are driving energy prices higher, with unrest is building in Venezuela ahead of this weekend’s presidential elections.
Kapadia explains:
Venezuela’s situation grows increasingly worrying and the expected drop in production from Iran means that prices are expected to reach four-year highs once again.
There are still concerns as to how increasing oil prices will affect the U.S. and global economy, and with tensions in the Middle East also growing, the next few months is likely to see the market become highly volatile.”
Also coming up today:
Britain’s bookmakers are reeling from the news that the maximum stake on their fixed-odds betting terminals (FOBTs) must be cut from £100 to £2, in an attempt to tackle the social damage caused by gambling.
It’s also a busy morning in the City, with estate agent Foxtons warning that the London property market remains “very challenging”, Ocado landing a partnership with US retailer Kroger, and Mothercare announcing the return of once-sacked CEO Mark Newton-Jones.
Holiday operator Thomas Cook and Royal Mail are also updating the market.
Thomas Cook H1 pre-tax loss narrows; Summer bookings +13% (59% sold), FY trading in-line.
— Mike van Dulken (@Accendo_Mike) May 17, 2018
The agenda:
- 1.30pm BST: US weekly jobless figures
- 5pm BST: Bank of England chief economist Andy Haldane speaks in London
Updated
