Financial market research and analysis

The Organization of the Petroleum Exporting Countries (OPEC) finally sealed a deal in Algiers to cut production for the first time in eight years to a range of 32.5-33.0 million barrels per day.

It was time for Saudi Arabia to temper its appetite for a larger market share, given that its own finances started to feel the pinch due to very low oil prices for a longer-than-expected period of time. The country needs to increase its income, and apparently, increasing the market share alone would not be sufficient to fill in the widening gap in the budget.

Although the market will not be satisfied by a single cut in production, yesterday’s deal has been an encouraging first step.

The price of oil should now stabilise $5-$10 above the current market price. We revise our year-end forecast higher and expect the barrel of WTI at $55/58 by the end of 2016.


Energy stocks are biggest gainers

Brent and WTI rallied on the news, while energy stocks soared and metals gained. Nikkei rallied 1.39% in Tokyo, as ASX 200 added 1.09%.

FTSE opened upbeat and rallied past 1.20% at the early hours of trading in London. Energy stocks (+2.44%) lead gains, followed by the mining stocks.

Royal Dutch Shell (+5.57%), BP (+4.52%), Anglo American (+4.60%), Glencore (+3.46%), BHP Billiton (+ 4.83%) and Rio Tinto (+2.81%).

The risk-on across the markets should encourage a further recovery in the FTSE throughout the day. From a technical point of view, the golden cross formation (50-hour moving average crossing above 200-hour moving average) on the hourly chart suggests the possibility of an extension to 6955p, before the 6985/7000p zone.