Surprise deal halts Saudi skid in shares

Shares in Saudi Arabia broke a three-day losing streak on the back of a preliminary agreement struck by oil-producing states to reduce output.

Brent crude surged 6 per cent on Wednesday evening, after producers agreed in principle at a meeting in Algeria to cut oil production by up to 800,000 barrels per day, confounding the expectations of most observers.

It was trading 0.3 per cent lower at $48.53 late afternoon in the UAE.

Saudi Arabia’s Tadawul, which had fallen 7 per cent during the first four days of the week, jumped on the Algiers deal and a resulting rise in crude futures, as institutional investors led a charge into cheaper big-name stocks.

The index eventually closed 1.6 per cent higher at 5,623.34. Petrochemical stocks were among the big gainers, with Sipchem and Petro Rabigh both rising over 8 per cent.

Traders have warned, however, that oil futures face significant volatility ahead in the next two months, with regional stocks likely to follow suit, as producers attempt to hammer out the details of a more comprehensive deal in time for Opec’s next formal meeting in Vienna at the end of Nov­ember.

“What we have isn’t an agreed cut, it’s a proposal that’s been tentatively agreed by some of those sitting around the table in Algiers,” said Julian Bruce, the head of institutional trading at EFG-Hermes in Dubai.

“We’re now faced with a massive data-gathering exercise and series of policy discussions between now and Nov­ember, with the prospect of one producer saying one thing only to be contradicted by another. It could be a quite a volatile two months.”

Commodities analysts meanwhile have warned that Opec producers – led by Saudi Arabia – were no longer in a position to control prices via production volumes, given the dramatic cost efficiencies achieved by shale producers in the US in the past two years.

“It is just as impossible to restore the conditions that used to prevail on the oil market as it is to step twice into the same river,” said analysts from Commerzbank in a research note.

“Any such attempt could even have bitter consequences for Opec given that the market is not even balanced and Opec does not control marginal production and therefore has no lasting control over prices.”

Energy stocks were mixed in Abu Dhabi; Taqa finished 3.8 per cent higher at 54 fils, while Dana Gas fell 3.5 per cent to 54 fils.

The capital’s headline index finished up 0.6 per cent at 4,476.32, buoyed by gains from FGB, Etisalat and Aldar Properties.

The Dubai Financial Market General Index rose 0.6 per cent to 3,474.38, thanks to gains by Emaar Properties and DIB. ​

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