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Market Update

European Markets Dive as Oil Drops to New Multi-Year Low

Author: Lucy Stoeva
Last Update: 2:47 PM ET January 20 2016

4:00 PM Frankfurt – European market indexes dropped more than 2% on the persistent oil price decline and China slowdown worries. In Italy, liquidity jitters took banking stocks down. BHP Billiton Plc dropped 7.4% after the mining giant cut its forecast for iron-ore production and wrote down more assets.

European markets fell sharply on Wednesday across all sectors, as the persistent decline in oil prices and deepening slowdown in China worried investors.

The International Energy Agency controlled by European and U.S. government on Tuesday said that the oil market is facing severe supply glut and the oversupply is expected to worsen with the additional contribution from Iran.

Brent crude oil plummeted 4.4% to 27.51 per barrel and West Texas Intermediate oil dropped 6.1% to $26.73.

In Italy, banking stocks continued to decline on liquidity concerns after Banca Monte dei Paschi di Siena said customers had been withdrawing their savings. The bank’s stock plunged 22.2% lower.

In London, U.K., gold producer Randgold Resources Ltd. was among the few gainers, up 3.5%, as the price of gold benefited from the search for safe haven.

In the U.K. wage growth slowed in the three months ending November, according to the Office for National Statistics. Average weekly earnings, excluding bonuses, rose 1.9%, compared to an increase of 2% in the previous period.

Investors are looking for additional economic stimulus measures after the policy meeting of the European Central Bank on Thursday.

In London, FTSE 100 index dropped 203.22, or 3.46%, to 5,673.58 and in Frankfurt, the DAX index shed 272.57, or 2.82%, to 9,391.64.

In Paris, the CAC 40 index tumbled 147.31, or 3.45%, to 4,124.95.

BHP Billiton Plc plummeted 7.4% to 581 pence after the mining giant cut its outlook for global iron-ore production and wrote down assets amid falling ore prices.

Iron ore production will decrease 10 million tons to 237 million tons in fiscal 2016 after the suspension of the Samarco joint venture mine in Brazil in November 2015.

BHP’s first-half results include write-downs for $911 million related to redundancies, closures, and a revaluation of its copper business. Last week the company already wrote down U.S. shale assets by $7 billion.

BHP also faces heavy fines and damage payment after the dam disaster in Brazil and the market expects the mining company to trim its dividend.

In addition, its petroleum production fell 5% during the last quarter to 60.2 million barrels as a result of the reduction of rigs in the U.S. shale business.

Royal Dutch Shell Plc fell 6.7% to 1,278 pence after the U.K. and Dutch oil explorer forecast a decline of 50% in its fourth-quarter profit from the same period a year ago due to sliding oil prices.

Genel Energy Plc tumbled 13.3% to 107.5 pence after the oil producer in Iraqi Kurdistan warned that oil production is expected to decline in 2016 due to problems with payments from the Kurdistan Regional Government and that will lead to lower investments.

The Kurdish administration has been dealing with Isis militants and has a disagreement with the Iraqi government over oil revenues and the payments of oil producers in the region have been delayed.

Genel’s total revenues reached $342 million in 2015, slightly below guidance.

However, 2016 revenues are expected to decline to between $200 million and $275 million, based on an average oil price of $45 per barrel for Brent crude, significantly higher than the current oil prices.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc