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Oil price rises as Saudi Arabia pledges supply cut - as it happened

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Rolling coverage of the latest economic and financial news, as Saudi Arabia’s oil minister tries to halt the recent fall in crude prices

 Updated 
Mon 12 Nov 2018 07.48 ESTFirst published on Mon 12 Nov 2018 02.22 EST
Saudi Energy Minister Khalid al-Falih speaking yesterday
Saudi Energy Minister Khalid al-Falih speaking yesterday Photograph: Karim Sahib/AFP/Getty Images
Saudi Energy Minister Khalid al-Falih speaking yesterday Photograph: Karim Sahib/AFP/Getty Images

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Key events

The euro has sunk as low as $1.124 against the US dollar today, the weakest since June 2017.

Bart Hordijk, Market Analyst at Monex Europe, blames “four apocalyptic horseman”:

“Brexit, Italy, slower growth and a cautious European Central Bank are the four apocalyptic horsemen currently chasing the euro to its doom - well, at least to a 17-month low against the dollar.”

Euro Slides to 16-Month Low, Pound Sinks as EU Risks Reignite pic.twitter.com/y8l1DWj6lT

— Alex Goncalves (@alexdgn) November 12, 2018

Oil analyst Olivier Jakob of Petromatrix argues that Saudi Arabia is right to be considering output cuts in 2019 (on top of the planned reduction in December).

He says (via Reuters):

“The balances for 2019 do show, especially in the first half of the year, that there will be significant global oversupply,”

UAE’s Energy Minister Suhail Mohammed Faraj al-Mazroui (L), Saudi Energy Minister Khalid al-Falih (C) and OPEC Secretary General Mohammed Barkindo attend the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) today. Photograph: Karim Sahib/AFP/Getty Images

Donald Trump might not be best-pleased by the prospect of Opec cutting production in 2019.

The US president has been lobbying the cartel to raise production, to avoid gasoline prices rising in America.

Last week he declared, with typical modesty:

“If you look at oil prices they’ve come down very substantially over the last couple of months.

“That’s because of me.”

In a sense Trump is right -- oil had risen because America imposed tough new sanctions on Iran. But Washington then granted a waiver to eight countries -- China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea -- allowing them to keep buying Iranian crude. This helped pull the oil price back down again, as Iran’s stocks were effectively back on the market.

Ricardo Evangelista, senior analyst ActivTrades, agrees that the pound is being hit by political instability (again):

Cable [the £/$ exchange rate] is down almost 1% on the day, in what appears to be a reaction to reports pointing to Prime Minister Theresa May’s inability to gather the necessary support within her cabinet for a Brexit deal.

As the struggle within the British camp intensifies, so does the chance of a no deal Brexit and perhaps of an earlier general election. Both scenarios present more downside risk for sterling.

After a positive start, Britain’s FTSE 100 has now dipped into the red - joining the other major European indices.

Tobacco stocks have been hit by reports that the US might ban menthol cigarettes; British American Tobacco has slumped 9%, with Imperial Brands down 4%.

Mining stocks and oil producers are up, though.

BP and Royal Dutch Shell have both gained over 1.5%, on the prospect of an Opec production cut pushing up prices.

nov12markets1
European stock markets in late-morning trading Photograph: Graeme/Thomson Reuters

Brown: World leaders aren't ready for next crisis

Phillip Inman
Phillip Inman

Former UK prime minister Gordon Brown has warned that the world is not well placed to deal with the next financial crisis.

Phillip Inman, the Observer’s economics editor, reports:

Politicians and central bankers will be denied the tools they used in 2008 when the next financial crisis hits the global economy, Gordon Brown said this morning, arguing that governments will need to respond by increasing debt levels and taxes even more than they did last time round.
The high levels of cooperation among senior policymakers across the world seen a decade ago have largely disappeared, which is a damaging situation when the global economy will need a strong fiscal stimulus following the next financial crash top avoid a slump. Speaking at a TUC conference to discuss the implications of the financial crisis, the former UK prime minister and an architect of the global cooperation a decade ago, said the four pillars to the 2008 rescue were no longer in place.

Brown pointed out that:

  • The G20 no longer represents global economic power in the way it was in 2008.
  • The rise of protectionism is already restricting trade and undermining the free trade needed to boost all nations following a crisis.
  • Central banks are not able to provide a monetary stimulus through cuts in interest rates; this is likely to still be the case many years from now.
  • Governments have denied themselves room to provide a stimulus through a misguided focus on high levels of debt and the use of taxpayer funds.

He said: “When you have a Keynesian problem, it needs a Keynesian response.”, adding:

“You cannot talk about a globally managed system. The Financial Stability Board has no power, it can only urge change, it is only by invocation that it can try to bring countries to change their policies.

The G7 was out of date in 2008 and was superseded by the G20, Brown said, adding that the G20 is out of date.

“So the decision-making framework for the next 10 years will need to be different to the one for the last 10 years.”

He rejected proposals gaining popularity on the left in the US for a form of “responsible nationalism” that recommends pulling back from global coordination in favour of addressing national economic problems of stagnant wages and living standards.
He said unilateral action would fail and only a global leadership could rescue economies from a financial crisis.

Great speech by Gordon Brown at the joint @TUACOECD & @The_TUC conference in London. We are sleepwalking towards the next financial crisis with limited room for maneuver. How will we deal with it? pic.twitter.com/CdqX7NvcdA

— Thomas Carlén (@TCarlen) November 12, 2018

Pound hit by Brexit worries

Sterling is having a bad morning as Theresa May’s Brexit plans take another pummelling.

The pound has slumped by 1.5 cents this morning to $1.283, its lowest level since November 1, in the face of yet more bad headlines for the PM.

May is still struggling to agree the terms of a Brexit agreement that is acceptable to both hardline eurosceptics in her party and those who supported Remain, and favour a soft exit.

So we have former foreign secretary Boris Johnson aghast that the EU might still have control of Britain after Brexit, and on the other hand former education secretary Justine Greening warning that parliament should block the plan because Britain will lose vital influence and credibility otherwise.

The government still hasn’t squared the Irish backstop circle either, meaning Northern Ireland’s DUP is still threatening to pull their crucial support.

I'm told that the #Brexit Withdrawal Agreement is now at least 5⃣0⃣0⃣pages long. Good luck if you have to print that out (and by that I mean me).

— Adam Fleming (@adamfleming) November 12, 2018

The opposition Labour party aren’t doing much better either, with shadow Brexit secretary Keir Starmer arguing that the whole thing can be stopped -- something leader Jeremy Corbyn doesn’t accept.

This has left City traders despairing, rolling their eyes, and selling both the pound and the euro....

#EURUSD has dropped through 1.13 and now trading at 1.1270 the lowest level since June 2017

— IGSquawk (@IGSquawk) November 12, 2018

Neil Wilson of Markets.com points out that any official oil output cut will require co-operation between Opec members, and Russia too.

As mentioned earlier, Moscow may not be persuaded that they should cut production to get the oil price up again.

He writes:

“Saudi Arabia has announced a cut to December crude output, a sign that it’s prepared to curb production to stem the decline in oil prices. The country will pump 500,000 barrels a day fewer next month than it has been in November

Brent rallied from 7-month lows at just above $69 to trade above $71.50. Having found support at $59.30, US crude has firmed to $61 but is struggling hold that handle.

In the short term this is a positive for oil, but we must question the impact longer term unless it’s the sign of more to come from OPEC.

Saudi Arabia cannot act alone though – realistically it needs to pull together OPEC allies and, critically, Russia to curb production if it wants prices to hold. The language from Russia suggests it is not ready to follow the Saudis yet.

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