Sector movers: Oil stocks drag amid concerns around Chinese reopening

Big Pharma and Utilities paced gains at the start of the week, as investors shifted towards defensive issues following reports of the first Covid-19 deaths in China since the end of the second quarter, which stoked concerns that Beijing might slow the reopening of its economy.

Hence the drag on oil and gas shares due to the possibly darker outlook for the Chinese economy.

Adding to the downward pressure on the oil patch, citing country delegates, the Wall Street Journal reported that producers within the Organisation of Petroleum Exporting Countries were discussing a possible 500,000 barrel a day increase in output for when they next met on 4 December.

That would come a day before the G-7's price cap on Russian oil came into effect and would reportedly help heal the rift between Riyadh and Washington.

Front-dated Brent crude oil futures fell by over 5% after the news to below $83 a barrel, although by the end of the session they had recovered and were edging up by 0.1% to $87.69 on the ICE.

As an aside, in remarks to CNBC on 18 November, former US Treasury Secretary, Steve Mnuchin, had said of the plan that not only was it not feasible, "it's the most ridiculous idea I've ever heard".

The price level for the cap might reportedly be announced on 23 November.

In any case, Saudi Arabian officials later denied the WSJ report, adding that the recently announced 2.0m b/d production cut by OPEC+ would continue until the end of 2023.

Nevertheless, according to SPI Asset Management's Stephen Innes, "Saudi Arabia's denial of the output increase contributed to a 12% round-trip in front-month Brent prices over the past 24 hours.

"It is possible that the suggestions to expand Opec+ production were floated to gauge the price reaction. The initial negative follow-through implies that demand concerns warrant a relatively modest increase in output if Opec+ is looking to stabilize prices once the EU embargo kicks in."

The news out of China also dented miners' shares even as a rebound in the US dollar dragged on copper futures.

20-day South Korean export data released overnight underscored the weakening growth momentum globally, including in China and with the US as the main exception.

But analysts at J.P.Morgan were relatively upbeat.

"We remain [overweight] Miners in particular, looking for further outperformance on top of 25%+ so far ytd," they said in a research note sent to clients.

"Key metal inventories are rather low, the sector is a clear play on China reopening, weaker USD, and it still looks attractively priced, with very good balance sheets and a prospect of extraordinary capital return. Overall, we believe the EM risk-reward is tactically more positive given the above, but the longer-term outlook remains challenging, and our China economist is looking for a relatively soft 2023 growth outcome."

Top performing sectors so far today

Pharmaceuticals & Biotechnology 20,536.94 +1.50%

Personal Care, Drug and Grocery Stores 4,117.37 +1.35%

Beverages 28,376.83 +1.33%

Media 9,262.05 +1.30%

Gas, Water & Multiutilities 5,849.72 +1.29%

Bottom performing sectors so far today

Oil, Gas and Coal 7,922.49 -3.32%

Industrial Metals & Mining 7,154.21 -2.00%

Automobiles & Parts 1,331.95 -1.43%

Retailers 3,199.78 -1.43%

Life Insurance 6,601.82 -1.31%