The deal to curb Iran’s nuclear programme prompted oil prices to fall and world equity markets to rise yesterday as investors priced in an easing of Mideast political tensions and the lift it could give to global economic growth.
The breakthrough accord reached over the weekend in Geneva halts Iran’s most sensitive nuclear activities and gives it some relief from crippling sanctions, but does not allow the Opec member to boost oil sales for six months.
The interim pact – aimed at easing a decades-old stand-off between Iran and the United States – won the critical endorsement of Iranian cleric Supreme Leader Ayatollah Ali Khamenei. France, Britain, China, Russia and Germany also agreed to the accord.
Despite tough work ahead to transform the agreement into a permanent solution, it was enough to ease oil supply fears and send Brent crude down $1.04 to $110.01. Crude prices pared losses after hitting a session low of $108.05 on the realisation markets will not soon be awash in new supply. “The deal is a step in the right direction, but it’s still very early days,” said Amrita Sen, chief analyst at consultants Energy Aspects in London.
“That’s why, after the knee-jerk reaction, the market is stabilising. It’s realising, at least in the next few months, there’s not going to be a substantial increase in oil exports.”
Equity markets in Europe also pared some gains and Wall Street edged higher, after straddling the break-even mark.
The nuclear deal with Iran gave European airline stocks and French carmakers a boost and sent Germany’s DAX to a record high.
Global equity markets, as measured by MSCI’s all-country world index of 45 countries, rose 0.14 per cent, while the pan-European FTSEurofirst 300 of leading regional shares closed up 0.43 per cent at a provisional 1,302.53.
The Dow Jones industrial average rose 29.99 points, or 0.19 per cent, at 16,094.76. The Standard & Poor’s 500 Index was up 1.03 points, or 0.06 per cent, at 1,805.79. The Nasdaq Composite Index was up 5.23 points, or 0.13 per cent, at 3,996.88.
The Nasdaq breached the 4,000 mark for the first time since September 2000, when the index was coming off all-time highs after the tech bubble burst earlier that year.
Energy shares were by far the weakest on the day, dropping 0.69 per cent. A majority of the 44 components of the index were lower. Oilfield service company Schlumberger Ltd was the biggest drag, down 2.1 per cent at $90.77.
“Less tension in the Middle East is always a positive, and any drop in gas prices will essentially act as a tax break for consumers going into the holiday shopping season,” said Jeff Duncan, chief executive of Duncan Financial Management in St. Louis. “This is a real benefit for the economy.”
US trading is expected to be light this week, with markets closed on Thursday for the Thanksgiving holiday and early on Friday. In Japan, a major oil importer, shares got an extra boost from a weaker yen to surge 1.5 per cent.