Oil Falls Before Doha as Global Markets Brace for Weekend Risk

  • U.S. stocks slip as energy producers trim weekly advance
  • Dollar declines, Treasuries rise as risky assets in retreat

Saudi Arabia, Iran Take Center Stage at Doha Oil Talks

Oil fell the most in two weeks before major suppliers meet in Doha to discuss an output freeze, boosting bonds and sending global stocks lower, with investors wary of potential disappointment from the talks. American equities retreated.

U.S. crude fell 2.8 percent, while the Standard & Poor’s 500 Index declined after energy producers cut their gains from the previous four days. Shares in Europe dropped for the first time in six days. Treasuries rose amid disappointing American factory data. Exporter currencies climbed as a flood of Chinese data added to evidence that the world’s second-largest economy is stabilizing. Brazil shares rose as a court ruled an impeachment vote against President Dilma Rousseff can go ahead Sunday.

After a week in which China calmed global markets with signs that stimulus policies were helping the economy recover, fresh risks are lining up for the weekend. Failure to reach an agreement in Doha threatens to destabilize oil prices that have rebounded amid prospects for an easing in a global surplus. Consumer confidence in the U.S. unexpectedly fell in April to the weakest level in seven months as Americans were rattled by unsatisfying wage growth and concern over how the upcoming presidential election would impact the economy.

“There’s a lot of uncertainty out there -- there’s continued uncertainty about global growth, there’s continued uncertainty about interest rates -- and I think that’s keeping people in a little bit of a holding pattern,” said Greg Woodard, a senior analyst and strategist at Fairport, New York-based Manning & Napier Inc., which oversees about $46 billion.

Finance ministers from the Group of 20 and central bank officials are gathering in Washington alongside the spring meetings of the International Monetary Fund and World Bank. 

Stocks

The S&P 500 fell 0.1 percent at 4 p.m. in New York, paring a weekly gain to 1.6 percent. Energy shares fell 1.3 percent to pace declines, while Citigroup Inc. was little changed after first-quarter earnings beat analysts’ estimates.

“We’ve had a nice week. We’re starting to see more week-to-week trading over
the past few months and on Fridays, people take off some risk before the
weekend,” said Joe “JJ” Kinahan, chief strategist at TD Ameritrade Holding
Corp. “The nice thing about earnings so far is that CEOs have not struck a
negative tone and that was one of the fears especially given what we’ve seen in
the last two quarters.”

European stocks snapped a five-day winning streak, trimming their weekly gain, as automakers led the Stoxx Europe 600 Index lower. The gauge fell 0.4 percent to 342.79 at the close of trading, paring its weekly advance to 3.3 percent.

The MSCI Emerging Markets Index rose 0.2 percent, leaving it up 3.7 percent in the week, the most since the period ended March 4. Brazil’s Ibovespa rose 1.4 percent before Sunday’s impeachment vote, extending a rally that has pushed the benchmark up 22 percent this year.

Commodities

West Texas Intermediate crude for May delivery fell $1.14 to close at $40.36 a barrel on the New York Mercantile Exchange. It was the biggest decline since April 4. Futures rose 1.6 percent this week. Brent for June settlement slipped 74 cents, or 1.7 percent, to $43.10 a barrel on the London-based ICE Futures Europe exchange. Prices climbed 2.8 percent this week.

At least 18 nations will attend the Doha talks, including the world’s largest crude producers Russia and Saudi Arabia. While an agreement to freeze production would help to support oil prices, further gains would be limited as such an outcome is already reflected in the market, Wood Mackenzie Ltd. analysts said in an April 14 note. 

Forty analysts and traders surveyed by Bloomberg were evenly split over whether this weekend’s talks will succeed in capping output, a majority of those who predicted a deal said it would have no impact on actual flows of crude.

“Oil prices had a strong run since the first rumors of the Doha meeting,” said Mathias van Der Jeugt, a strategist at KBC Bank NV in Brussels. “We’ve had this small profit-taking in equities and you’ve also got this small profit-taking move in oil prices.”

Oil Freeze: Everything You Need to Know About the Doha Summit

Gold futures rose for the first time in three sessions as reports Friday on the American economy disappointed. Futures for June delivery rose 0.7 percent to settle at $1,234.60 an ounce. 

Currencies

The dollar slumped for the first time in four days versus the euro and the yen as U.S. economic reports fell short of forecasts, clouding Federal Reserve plans to boost interest rates.

The yen rallied, halting a three-day decline, as a drop in oil in the run-up to the meeting in Doha this weekend prompted investors to seek safer assets. Oil has become a key driver of currencies this year, making the Doha meeting crucial for traders of foreign exchange as well as commodities. The Japanese currency gained 0.5 percent to 108.87 per dollar, erasing losses as much as 0.5 percent.

Bonds

The meeting Doha may prove key for bonds, which tend to have an inverse relationship with oil since the faster inflation created by higher crude prices erodes the value of fixed-payments linked to the securities.

Treasuries rose, led by longer-dated debt, after a report showed U.S. manufacturing output unexpectedly fell last month by the most in more than a year, underscoring traders’ views that the Federal Reserve faces an uphill battle in raising interest rates. The gap between yields on two-year notes, which are more sensitive to the outlook for Fed policy, and 30-year bonds, which are influenced by expectations for inflation and economic growth, fell for a fourth day.

The yield on U.S. 10-year Treasuries fell four basis points to 1.75 percent, paring this weeks gain to three basis points.

Money managers are dumping Treasury exchange-traded funds as a revival in equity and commodity prices curbs demand for the relative safety of U.S. debt.

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