Sector movers: Saudi pledge boosts oil majors, Rolls Royce set to stall

A pledge by Saudi Arabia and Russia to do "whatever it takes" to cut global oil stockpiles back down to size boosted oil firms' share prices.

Speaking in Beijing, Saudi energy minister Khalid al-Falih and his Russian counterpart, Alexander Novak, agreed to extend the output reductions from last November for another nine months.

That saw front month Brent crude oil futures trade higher by 3.1% to $52.45 a barrel as of 1439 BST, despite a falling US dollar, which in turn saw BP rise 1.67% and Shell's B shares by 1.37%.

Their aim - although other OPEC producers had still to ratify any agreement at their end May meeting - was to force global crude oil inventories back down to their five-year average, thereby creating a 'floor' for the price of oil.

Although some traders were skeptical that such a deal would suffice, Capital Economics was not.

On Monday, its analysts told clients as much, telling them that they remained comfortable with their end-2017 Brent price forecast of $60.0 per barrel - even if US output recovered.

"We estimate that if OPEC simply rolls over its cuts until March 2018, the market will be in an average deficit of about 1m bpd over the period." That should be enough to drain oil stocks among OECD nations by roughly 360.0m barrels, far more than the 250m barrel depletion necessary to return inventories to their five-year average.

Nonetheless, they admitted the degree of countries' compliance with the deal was a risk, more so the longer the deal went on.

Indeed, to date Saudi Arabia had made up for some of the slippage by other OPEC members.

Miners were also higher after China pledged 540bn yuan (£60.1bn) in financing for international development projects, including on its new Silk Road fund, a plan to create new transport networks linking the Asian giant with countries around the world.

The news helped keep three-month copper futures in the black; they were higher by 0.3% to $5,559.00 per metric tonne on the LME as of 13:30 BST despite a spate of weak Chinese economic data overnight.

Steel rebar futures also edged up in overnight trading to reach $549.4 a tonne.

Aside from platinum, other base metals were weaker in LME trading, with three-month lead down by 2.3% and zinc sporting losses of 1.4% to $2,554 per tonne.

Industrial output growth in China slowed from a 7.6% year-on-year clip in April to 6.5% for March (consensus: 7.0%).

However, production of steel, cement and glass all rose further, suggesting that construction was holding up for the moment, according to analysts.

On a related note, on 12 May analysts at HSBC said Beijing was increasingly aware of the risks of over-tightening policy.

"We may see more policy co-ordination and calibration in the coming months to limit the impact on growth."

Going the other way, Vodafone weighed on fixed line telecoms Vodafone said it had agreed to transfer 35% of its indirect shareholding in Safaricom to Vodacom Group, its sub-Saharan African subsidiary, for 226.8m new Vodacom shares.

Aerospace and defence was also flying on just one engine at the start of the week after Investec said the "substantial" investment needed to develop and launch a new engine for the Boeing 797 would prove a headwind to the company's stated goal of generating "£1bn plus" of free cash flow by 2020.

Top performing sectors so far today
Oil Equipment, Services & Distribution 15,284.49 +2.61%
Mining 14,730.86 +2.37%
Oil & Gas Producers 8,006.34 +1.51%
Industrial Metals & Mining 2,122.05 +1.18%
Forestry & Paper 21,941.26 +1.14%

Bottom performing sectors so far today
Fixed Line Telecommunications 3,484.34 -1.10%
Aerospace and Defence 5,206.51 -1.03%
Pharmaceuticals & Biotechnology 14,515.78 -0.76%
Media 7,780.28 -0.75%
General Retailers 2,625.63 -0.72%