Stocks in European energy companies took a beating on Tuesday as
the price of oil tumbled to a close to four-year low, in the wake
of Saudi Arabia unexpectedly cutting prices for crude sold to the
U.S.
Shares in offshore driller Seadrill Ltd. tumbled more than 6% to
the bottom of the Stoxx Europe 600 index, which was flat on the
day, while Tullow Oil PLC, Statoil ASA, Total SA, Royal Dutch Shell
PLC, BG Group PLC and BP PLC slipped too.
That sent Europe's oil and gas index down 2.5% by midday, making
it the worst performing sector across the region.
"We've been very concerned about oil for a long time and have
therefore only got very minimal exposure to the sector, but the
news out of Saudi Arabia is certainly of major concern for any of
the players in the sector," said Colin McLean, managing director at
investor SVM Asset Management in Edinburgh.
Mr. McLean said that the full market impact of the move may be
yet to materialize, especially as the rally in the dollar is
showing no signs of slowing and could accelerate in the coming
days. "Even though some stocks have come down a lot, we're still
too cagey to view this as an attractive entry point," he added.
Oil often moves inversely to the U.S. currency as a stronger
buck makes oil more expensive for buyers using foreign
currencies.
On Tuesday, the dollar was trading around 0.4% higher against
the euro and 1.9% higher against Japan's yen. Year-to-date it's now
gained 10.4% and 8.7% against the two currencies respectively.
Since the start of the year, Brent crude has now lost more than
25% and WTI crude oil more than 22% according to Factset data.
In October, a cut to Saudi selling prices for Asia pushed oil
markets sharply lower as markets took it as a sign the Saudi Arabia
was keener to protect market share than to keep oil prices
high.
The slide has however, buoyed some stocks. On Monday, airline
stocks enjoyed a rare surge.
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