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Nov. 28, 2014, 12:30 p.m. EST

European oil stocks finish lower after OPEC holds production target

Eurozone inflation falls in November

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By Carla Mozee, MarketWatch


BP

LONDON (MarketWatch) — Oil stocks on Europe suffered Friday following a decision by the Organization of the Petroleum Exporting Countries not to cut its 30-million-barrel-a-day production target for oil.

The Stoxx Europe 600 oil and gas group was pushed 3.5% lower, and fell 9.5% for the week, after OPEC held to its production target, disappointing those investors who had been hoping for the cartel to reduce output, in an effort address the issue of oversupply and curb the related drop in global oil prices.

Investors also assessed the impact of weak energy prices on eurozone inflation, which fell 0.3% in November, according to data released Friday by Eurostat.

The decline in inflation “just reiterates how serious a problem low inflation levels have become to the European Union economy,” said Jameel Ahmad, chief market analyst at FXTM, in emailed comments. “Now that OPEC has decided against cutting oil production, this has led to even weaker commodity prices and it is anticipated that inflation levels might now decline even further in the short-term. This in itself is going to place further pressure on the ECB to move towards full-blown quantitative easing.”

U.S. crude-oil futures /zigman2/quotes/209723563/delayed CLF25 0.00% dropped to a more than four-year low, losing more than 6%, to trade just above $69 a barrel. January Brent crude managed to turn slightly higher after Thursday’s session during which Brent futures hit their lowest since August 2010. Brent is the global oil benchmark.

Markets: The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.66%  finished off session lows, ending down 0.1% at 347.25, but oil stocks remained the worst performers. Premier Oil PLC /zigman2/quotes/200314882/delayed UK:PMO -5.55%  shares were knocked down 13%, leading overall losses on the pan-European benchmark. Exploration firm Afren PLC  dropped 11%, Norwegian energy company Statoil ASA stumbled 9.3% and Norwegian oil services provider Seadrill Ltd. /zigman2/quotes/208343773/delayed NO:SDRL +12.64%  fell 8.8%.

Among oil majors, shares of Total SA /zigman2/quotes/206172043/delayed FR:FP -1.35%  fell 2%, Royal Dutch Shell PLC /zigman2/quotes/204253697/delayed UK:RDSB -2.10% fell 1.9% and BP PLC ended 1.4% lower.

But travel-related shares were among the best price performers as oil futures fell, considered a benefit to the oil-price sensitive sector. Air France-KLM SA /zigman2/quotes/205396176/delayed FR:AF -1.93%  climbed 6.8%, Deutsche Lufthansa AG /zigman2/quotes/205496028/delayed DE:LHA -3.13%  rose 4.9% and TUI AG /zigman2/quotes/206714402/delayed DE:TUI1 -4.48%  moved up 3.5%.

The Stoxx 600 rose 0.6% for the week. Its 3.1% rise for November was the strongest monthly gain since February.

Turning to country indexes, Germany’s DAX 30 /zigman2/quotes/210597999/delayed DX:DAX -0.70%  edged up 0.1% to 9,980.85. It finished the week higher by 2.6%, and the month higher by 7%. The monthly rise was the best since January 2012, according to FactSet data.

France’s CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 -1.22%  on Friday rose 0.2% to 4,390.18, pushing up its monthly rise to 3.7%. The U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.71% slipped less than 1 point to 6,723.4. It closed November higher by 2.7%, its best monthly run since April.

Inflation: The weakness in energy prices showed up in the eurozone’s November inflation reading. The headline number fell to 0.3%, down from 0.4% in October. Stripping out the effects from energy, food, alcohol and tobacco, core inflation reading stayed at 0.7%.

The data arrived as investors watch the European Central Bank for signs it will launch full-blown quantitative easing, as the eurozone economy grapples with low inflation levels and lackluster economic growth. The ECB will meet next Thursday. Read: These 5 charts show how much Europe needs QE.

With expectations ramping up that ECB will launch sovereign-bond buying, yields on government bonds throughout the eurozone have been hitting all-time lows. The yield on Germany’s 10-year bond /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y 0.00%  fell to 0.659% on Friday. At the same time, the yield on the 10-year French government bond /zigman2/quotes/211347162/realtime BX:TMBMKFR-10Y 0.00%  dropped to 0.972%, after having dipped below 1% for the first time on Thursday. Yields decline as prices rise.

In other data news on Friday, the unemployment level for the eurozone remained at 11.5% in October. The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0675% late Friday bought $1.2433, compared with $1.2467 on Thursday.

Elsewhere on the currency market, the Russian ruble /zigman2/quotes/210561862/realtime/sampled USDRUB +0.0089%  fell to new lows Friday following OPEC’s production decision, as Russia takes in roughly 50% of its revenue from exporting oil and gas. The dollar was buying 49.563 rubles compared with 48.795 rubles late Thursday.

Elsewhere on the European radar, Switzerland will hold a vote Sunday on whether the country’s central bank should more than double its holding of gold. The referendum aims to force the Swiss National Bank to hold a fifth of its assets in gold within five years and keep the bank from selling gold in the future.

You’re invited: A free evening event focusing on investing opportunities in Europe

Will you be in London on Dec. 3? Then you’re invited to our MarketWatch Investing Insights event, “The worse Europe gets, the more you should invest.”

Governments are in trouble, reform efforts have stalled, unemployment is climbing. The news from the eurozone is bleak, and investors are fleeing. But that’s a mistake: The worse the economic data from Europe get, the more you should be buying. Why? Because actions by the ECB will boost asset prices and the stock market in particular. And, big exporters can grow sales. Lower costs and steady sales translate into higher profits and dividends. Join us for an evening of cocktails and conversation to explore these opportunities.

Our panel will be led by MarketWatch Columnist Matthew Lynn, a renowned financial journalist based in London and the author of “Bust: Greece, the euro and the Sovereign Debt Crisis.” He’ll be joined by Mark Hulbert, MarketWatch columnist and editor of the Hulbert Financial Digest.

This event is free, but RSVPs are required. It will be held Wednesday evening, Dec. 3, in London. For more information or to RSVP, send an email to marketwatchevent@wsj.com.

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Carla Mozee is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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