European Markets Rise as OPEC+ Pauses Production Hikes

European stock markets opened the week on a positive note, buoyed by gains in the oil sector and anticipation of corporate earnings reports. This upward trend followed the decision by OPEC+ to maintain production levels, which alleviated concerns about potential oversupply in the oil market.

Oil prices experienced a notable increase on the news. The international benchmark, Brent crude, reached a trading price of $64.76 per barrel, while the US West Texas Intermediate was priced at $60.92. OPEC+ announced a modest increase in output of 137,000 barrels per day for December, consistent with production levels from previous months. This decision came as the cartel decided to pause any further production hikes in the first quarter of 2024.

Market analysts noted that this decision contributed to a temporary boost in oil prices and subsequently supported the stock prices of major oil companies. “The decision by producers’ cartel OPEC+ to pause further output hikes at the start of next year, amid concerns about a glut of supply, helped give oil prices a lift and, in turn, boosted UK market heavyweights BP and Shell,” commented Russ Mould, investment director at AJ Bell.

European stock indices showed varied performance throughout the morning. By 11:00 CET, the UK’s FTSE 100 was slightly up, while Germany’s DAX led the gains with a rise of 0.8%. The CAC 40 in Paris also registered increases, climbing nearly 0.2%. This positive sentiment persisted despite uncertainties surrounding France’s national budget and negative PMI data indicating ongoing contraction in the manufacturing sector.

Investor sentiment was further influenced by ongoing tensions between the West and Russia. Anticipation of new sanctions targeting Russian oil companies such as Rosneft and Lukoil is expected to limit Russia’s production capacity, potentially tightening supply in the global market. Conversely, major Western oil companies are reportedly benefiting from the disruption in the supply of Russian refined fuels due to sanctions and attacks.

Looking at corporate performances, several European firms are set to report earnings this week, including AstraZeneca, BP, BMW, and Commerzbank. Notably, Ryanair reported stronger-than-expected financial results for the first half of its financial year, which runs from April to September. The airline saw a 13% increase in revenues, totaling €9.82 billion, driven by a 42% year-on-year profit increase to €2.54 billion, attributed to a robust Easter travel season. Ryanair shares climbed 2.90% in Dublin around midday.

Ryanair’s CEO, Michael O’Leary, expressed concerns over high taxes imposed on airlines in Europe, particularly environmental duties. In a recent interview with CNBC, he indicated that the airline might consider relocating capacity outside the UK if the new budget includes such levies. “Ryanair is also one of several airline operators with an eagle eye on taxes and costs. It is no longer putting up with unfavourable tax systems, preferring to switch flights and routes to less punitive locations,” noted Mould.

In currency markets, the euro weakened against the US dollar, trading at $1.1517 by 11:00 CET, reflecting a decline of more than 0.2%. Additionally, the British pound and the Japanese yen also faced losses against the dollar, with the pound trading at $1.3136 and the yen at ¥154.15. Meanwhile, gold prices saw a slight increase, trading just above $4,000, marking a rise of 0.3%.

Overall, the combination of OPEC+ decisions, corporate earnings, and geopolitical developments continues to shape the outlook for European markets as the week progresses.