Oil prices plummet to 5.5-year lows

In this photo from Jan. 6, 2015, steam blows over the Green Plains ethanol plant in Shenandoah, Iowa. Roughly 100 trucks a day filled with corn flow into this ethanol plant in southwest Iowa even as crude oil prices continue to collapse. Oil prices may have dipped below $50 a barrel for the first time since April 2009, but ethanol plants across the nation continue to operate at a brisk pace in order to satisfy a domestic and export demand that hasn’t weakened. AP PHOTO/NATI HARNIK

LONDON–Oil prices slumped Monday to fresh 5.5-year lows under $49 per barrel, hurting the energy sector, but European stock markets pushed higher on eurozone stimulus hopes.

Brent crude for February delivery collapsed to $48.13–the lowest since late April 2009–before recovering slightly to $48.23. US benchmark West Texas Intermediate (WTI) for February hit a similar trough at $46.75 a barrel.

The latest heavy falls were sparked by worries over the ongoing global crude supply glut, and came after US investment bank Goldman Sachs cut its price outlook.

“Oil was once more the recipient of dismal data as Goldman Sachs downgraded its forecasts for the commodity, from an average price of $83 per barrel in 2015 to $50,” said Spreadex analyst Connor Campbell.

“Brent crude greeted this news by dropping to new five-and-a-half-year lows; the confirmation of a bleak future for the commodity will see these prices linger for a long time yet.”

Global oil prices have more than halved since June, dented also by demand jitters arising from the faltering world economy.

QE hopes persist

European equities were, however, buoyed Monday by persistent hopes of quantitative easing (QE) stimulus from the European Central Bank, dealers said.

In late afternoon deals, London’s benchmark FTSE 100 index added 0.12 percent to 6,508.74 points, Frankfurt’s DAX 30 won 1.25 percent to 9,768.91 points and the CAC 40 in Paris climbed 0.98 percent to 4,219.92.

Market expectations are growing that ECB chief Mario Draghi could decide to implement QE, or bond-buying, in order to combat deflation in the 19-nation eurozone.

“Some form of quantitative easing (QE) is clearly on the table,” noted economist Neil MacKinnon at Russian financial services group VTB Capital.

Draghi had stated earlier this month that the ECB could launch a QE program of purchasing government bonds to protect the eurozone from deflation.

Some analysts believe the ECB now has little choice to do so at its next meeting on Jan. 22, as data showed last week that eurozone consumer prices sank 0.2 percent last month, in the first fall in five years.

Deflation is defined as an extended period of falling prices where consumers begin to put off purchases in expectation they will fall further, sparking a damaging cycle of falling production, employment and prices.

“With plunging oil prices, Europe actually in deflation and declining inflation rates across the world, the specter of a deflationary spiral is certainly a possibility,” warned London Capital Group dealer Jonathan Sudaria.

Wall Street stocks opened little changed Monday as many energy equities sank on the plunging oil prices.

Five minutes into trade, the Dow Jones Industrial Average stood basically unchanged at 17,738.10, up a scant 0.73 of a point.

The broad-based S&P 500 slipped 0.07 percent to 2,043.41, while the tech-rich Nasdaq Composite Index added 0.08 percent at 4,707.78.

Elsewhere, most Asian stock markets also retreated after a sell-off in New York at the end of last week in response to data showing weak US wage growth.

The news on wages, which overshadowed another forecast-beating rise in job creation, pushed the dollar down against the euro because it complicates the Federal Reserve’s plans to raise interest rates.

Blockbuster drugs takeover

Meanwhile, London investors digested news of an impressive takeover in the drugs sector.

British drugmaker Shire revealed Sunday that it has agreed to buy US rival NPS Pharmaceuticals for $5.2 billion (4.4 billion euros).

The deal, which has been agreed by the management of both companies, comes two months after the collapse of US drugs giant AbbVie’s $54-billion takeover of Shire.

In late afternoon trade, Shire stock dropped 0.25 percent to 4,729 pence.

“Not only should this acquisition boost the company’s operational strength but will also help ward off any other lingering suitors,” said IG analyst Alastair McCaig.

In foreign exchange on Monday, the euro declined to $1.1818, from $1.1842 late on Friday in New York.

On the London Bullion Market, gold edged up to $1,222 an ounce from $1,217.75 on Friday.–Roland Jackson