Crude Oil Advances as OPEC Keeps Quotas; Stocks Fall, Yen Gains

Oil surged and energy stocks rose after OPEC ministers kept production quotas unchanged. European equities slumped and the yen strengthened against all 16 major peers as an unexpected slowdown in German industrial production reinforced concern that the global economic recovery is slowing.

Crude futures jumped 1.5 percent to $100.53 a barrel at 11:13 a.m. in New York after slumping 1.1 percent. Energy shares in the Standard & Poor’s 500 Index climbed 0.9 percent as the entire measure lost 0.1 percent. The Stoxx Europe 600 Index slid 0.8 percent, falling for a sixth straight day, and German 10- year bond yields dropped four basis points to 3.05 percent. The yen gained 1.3 percent against the Norwegian krone and 1 percent versus the euro.

Ministers from OPEC, which is responsible for 40 percent of global oil supply, were unable to reach a decision on changing production limits that have been in place since 2009, the group’s Secretary General Abdalla el-Badri said. The report on Germany’s economy followed Federal Reserve Chairman Ben S. Bernanke saying the U.S. recovery was “frustratingly slow.” The World Bank said global gross domestic product may expand 3.2 percent this year, less than a 3.3 percent forecast in January.

“Energy, oil are getting some play after the OPEC meeting,” said Eric Green, a money manager at Penn Capital Management in Philadelphia, which oversees $6.5 billion. “You’re just seeing a listless market with a couple of areas that look attractive. People who have wanted to sell have sold. There’s a lack of buyers because there’s not a lot of good news in the short run. We don’t expect the economic data to start picking up dramatically. The macro-news has not been positive.”

Oil, Copper, Gold

Oil’s rebound drove up the Thomson Reuters/Jefferies CRB Index of commodities, which climbed 0.2 percent. Copper futures for July delivery slumped 1.6 percent to $4.083 a pound today. Gold for August delivery declined 0.5 percent to $1,536.90 an ounce. Through yesterday, crude climbed 8.4 percent in 2011, beating the 3 percent return with dividends from the S&P 500 and the 4.1 percent advance by the CRB measure.

Mohammad Aliabadi, the acting Iranian oil minister and current OPEC president, said the group will maintain current output for now. A Gulf delegate said yesterday that the Organization of Petroleum Exporting Countries was going to raise quotas. A U.S. government report showed a bigger-than-forecast supply drop.

“It was expected that they would raise the quotas, so this comes as a bit of a shock,” said Rick Mueller, a principal with ESAI Energy, LLC in Wakefield, Massachusetts.

Defensive Industries

Most U.S. stocks fell, with almost two declining for each that rose. The S&P 500 swung between a loss of 0.4 percent and a gain of 0.1 percent. In the stock market, investors are buying shares considered havens during an economic slowdown. While the S&P 500 has risen 2.3 percent from its year-to-date low on March 16, industries less-tied to growth -- health care, consumer staples, telecommunications and utilities -- have risen the most among 10 groups in the index.

U.S. stocks whose earnings are most correlated to economic growth may decline more than other industries as a gauge of the shares nears its 200-day moving average, according to top-ranked UBS AG technical analysts. The Morgan Stanley Cyclical Index of 30 stocks may fall 3 percent to 980 if it falls below 1,024 and 1,010, according to a report from UBS analysts Michael Riesner and Marc Muller yesterday. The gauge closed at 1,035.20 yesterday, when its 200-day moving average was 1,013.44.

‘Weak’ Month

“From a cyclical standpoint, the month of June should be weak for risk assets,” Riesner and Muller wrote in the report. “On a short-term basis, the U.S. market looks oversold and could bounce later this week, but given the poor picture in technical indicators and the increasing technical damage in key sectors, new lows in financials and cyclicals/energy complex sitting on key support, we are sticking to our cautious market stance.”

Yields on 10-year Treasury notes fell before the government’s $21 billion auction of the securities today and a $13 billion offering of 30-year bonds tomorrow. The extra yield investors demand to hold 30-year securities instead of 2-year debt was almost the highest since March on speculation interest rates will stay low.

The cost of protecting U.S. corporate bonds from default climbed to the highest level in 11 weeks amid concern about the economy. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.7 basis point to a mid-price of 96.4 basis points as of 8:44 a.m. in New York, according to index administrator Markit Group Ltd. That’s the highest since 96.8 basis points on March 23.

--