Oil prices and mining shares recover

• 9 December 2015
• From the section Business

Oil prices have staged a recovery, while shares in many mining firms rebounded from Tuesday’s steep falls.

The benchmark price of Brent crude managed to rise back above $40 a barrel in Asian trade.

But shares in Anglo American, which fell 12.3% on Tuesday, fell another 2.2% in early London trade.

And most analysts believe that, with the world continuing to face a glut of commodities, any recovery will be short-lived.

Rick Spooner of CMC Markets said: “The strong downward momentum in oil markets stalled. However, there was no news to support optimism and with spot iron ore [prices] continuing to drift lower, investors are likely to remain nervous about mining and energy stocks today.”

Mike Tholen, economics director at offshore trade body Oil and Gas UK, said the low oil prices would mean more job losses in the oil industry.

He said: “We have to recognise that at the current price outlook, there will be further job losses. [The UK oil industry] is inevitably going to be smaller for many years to come.

“We have oil fields now which are barely making enough money, and not enough money to cover their running costs in some cases.”

Despite Wednesday’s recovery, oil prices face downward pressure following the decision late last week by the Opec cartel to keep output high in the face of huge global oversupply.

The supply of oil is estimated to be up to two million barrels in excess of demand worldwide. Most analysts say they do not see prices rising much until late 2016 at the earliest.

James Hughes, chief market analyst at GKFX, said: “It seems that whatever happens, Opec will not budge and yet again have reiterated their stance that the markets will undo this mess themselves.”

Meanwhile, the price of iron ore fell to $39.25 on Wednesday. It peaked at close to $200 a tonne in 2011.

The slowing Chinese economy has cut the demand for steel there. Many steel producers have shut down and much of the iron ore that was destined for their furnaces is lying idle at China’s ports.

China has cut export taxes on steel and iron products to shift the metal out of the country, but that has only served to push global prices lower.

London-listed mining stocks have fallen by about 50% this year, as China’s economic growth continued to slow, with Anglo-American the biggest casualty.

Its stock has fallen almost 73% this year – far more than its rivals – largely because of its higher-cost iron ore mines.

However, on Wednesday, shares in some mining companies bounced back. Shares in Rio Tinto were 2.43% higher after a fall of more than 8% on Tuesday. BHP rose 2.3%, while Glencore rose 0.3%.

Beaufort Securities trader Basil Petrides said: “The miners will probably continue to weaken while the Chinese economic outlook remains a concern.”