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The UK Index ’s Oil Majors are weighing on the index this morning, accounting for 11pts of the index’s 65pt drop. This comes as oil prices languish around recent pull-back lows, US and Brent Crude a whole $3-4 a barrel (circa 10%) off their Q1 recovery highs. After a near 50% bounce from 12/13yr lows in Jan/Feb, coaxed by a weaker USD, bullish reversal momentum and panic short-covering, rational thought has prevailed. News of an April 17 meeting between 12 OPEC and non-OPEC producers (read Russia) to discuss a production freeze to counter the global supply glut and boost prices is not having the desired effect.
After multiple suggestions of meetings coming to nothing in Q1, markets are struggling to see how a freeze can be agreed while certain nations remain in expansion mode (Iran, Iraq) and US stockpiles swell despite a Shale/Fracking slowdown. Trust remains an issue. Such pain has been inflicted on so many non-US oil-reliant nations (while most blame Saudi stubbornness, sanctions have also played their part for Iran and Russia) that it wouldn’t be a surprise to any of the other 11 attendees ignore a freeze by peers in order to profit from higher prices. Global growth uncertainty hasn’t gone away either following Fed Chair Yellen’s dovish comments this week. A tough start for Q2.
Mike van Dulken, Head of Research, 1 April
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