Article / 29 September 2016 at 7:00 GMT

Morning Markets: Iran calls Saudi bluff on oil

Former managing editor, / Saxo Bank



  • Germany: Unemployment Report                    (0755 GMT)
  • US: Q2 GDP                                                     (1230 GMT)
  • US: Pending Home Sales                                 (1400 GMT)

Iran's high-stakes poker game with bitter rival Saudi Arabia paid off overnight after Tehran earned an exemption from Opec's historic oil production deal that looks like a nail in the coffin for Riyadh's controversial 'rule-and-supply' strategy of the last two years.

The deal — struck on the sidelines of the oil producers conference in Algiers — could see oil production cut by 700,000 barrels/day to a 32.5-33 million b/d range with details to be thrashed out over the next two months before the next Opec get-together on November 30.

Brent crude gained some 6% to peak at just north of $49/b and continues to froth just below the handle as markets wait to assimilate the fallout from the shock announcement before a possible assault on the key $50/b barrier. US benchmark WTI also rose some 5% overnight before settling into a $47-47.50/b range.

Energy stocks spiralled to dizzying highs on the news with China Oilfield Services up 11%, Japan Petroleum up 9.5%, Australia's Woodside up 7.43% at 0616 GMT and Chinese oil giant CNOOC up 5.83%. Oil-linked currencies such as the Canadian dollar and the Malaysian ringit also gained against the dollar.

Iran's exemption will be celebrated in Tehran as a significant diplomatic coup having resisted Saudi efforts to box it into a corner on an oil production cut. Iran is currently pumping to the tune of 3.6 million b/d and pledged earlier this year to return the country to a production level of 4 million b/d after sanctions imposed by the international community were lifted.

The focus will now turn to the November 30 meeting to see how Opec intends to see the deal through, who else will gain exemptions from the plan, and whether Russia joins the process. Russia's oil output is slated for an all-time high in 2016. 

Away from oil, Anheuser-Busch InBev got the green light for its $100 billion plus deal for SABMiller as the merger and acquisition wave builds and it was a raspberry for Blackberry after it said it would outsource the production of its iPhone to Indonesia and effectively signal defeat in its global market share battle with Apple and Samsung.

But there is really only one story in town Thursday and that's the black gold. But, while the oil-led rally should see further gains across the equities segment, there is likely to be some sober assessment of what the deal will lead to and whether oil can actually break decisively through the $50/b stranglehold on the upper limits of the market.

With a glut of shale producers waiting to come back online in the US, it probably won't. When that happens, it really will be the decisive signal that Opec's supply-and-rule strategy failed in its ultimate target.

Market signals

Asian session

  • Opec agree to a deal that will cut production for the first time in eight years
  • Asian stocks rose with Malaysia’s ringgit and oil climbed to a three-week high
  • Malaysia, Asia’s only major net oil exporter, saw MYR jump 0.9% on the news
  • The MSCI Asia Pacific Index had gained 0.7% in mid Asian trade
  • US crude oil rose 5% to $47.20/b but settled back to just over $47 in later trade
  • Goldman Sachs says output deal could add $10/b to oil prices
  • Tin gained 0.7% to trade just below $20,000/tonne
  • Iron ore futures in China have jumped more than 4% in Asia
  • BHP shares soar to 10-month high at $A22.46.
  • Aussie job vacancies rise 4.5% in the three months to August
  • Benchmark 10-year bonds in New Zealand fell as did those in Australia and Singapore
  • The Nikkei 225 was up 1.59% at 0520 GMT
  • The Hang seng was up  0.37% and Shanghai rose 0.49% at 0525 GMT
  • India's BSE Sensex was up 0.25% at 0525 GMT
  • The ASX/S&P 200 was up 1.06% at 0549 GMT

Forex ahead

  • MYR strengthened as much as 0.9% versus USD as Opec news came out
  • NKR and CAD were also beneficiaries of Opec move in early trade
  • Commodity currencies are boosted by oil deal, sending AUD to a three-week high
  • The Aussie dollar has shot through the US77¢ mark 
  • At 0546 GMT, USDJPY was trading at 101.58

From the Floor

Credibility loss. "The Fed has lost any ability to guide the market," says Hardy

Too high? “We are seeing a lot of negative analysis claiming Twitter is overvalued,” says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Opec's delivery
Opec put the cat among the pigeons overnight with a surprise deal to cut oil production, but there will be some hard negotiation in the run up to the November 30 meeting, writes Ole Hansen.

US GDP will find its feet in the third quarter by most estimates, so don't expect any interesting numbers for Q2 today, says James Picerno

ASX injection
A commodities-heavy index like the ASX could not ask for more this morning as every energy and mining-related stock enjoyed the oil surge, says Saxo Capital Markets in Sydney

Ringgit rules
Among the big Asian beneficiaries of the Opec deal was the Malaysian Ringgit, the currency which backs Asia's only net oil exporter, says the Saxo team in Singapore

Mirror man
Back-testing can provide a great deal of value in the form of realised trade returns, but the relevance of your data is key, says community stalwart fxtime

Something's afoot
A spate of bond issuers cancelling news deals this week could be a sign of market discipline, writes Michael Boye. On the other hand, it could indicate a looming credit crunch.

Hold it
Gold's status as a safe haven once again looks under threat after buying interest in the dollar kept the precious metal on the defensive, says Ole Hansen. [video]


Opec agreed a cut for the first time in eight years blasting Brent towards
$50/barrel and helping energy stocks to big gains on the day. Photo: iStock 

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