Energy shares rally after Suez Canal incident spurs oil rebound


Energy shares and oil prices rallied on Wednesday after a ship ran aground in the Suez Canal, while cyclical sectors climbed as business activity surveys suggested a strong rebound for the US economy was under way.

Wall Street’s blue-chip S&P 500 index rose 0.7 per cent, led by a 3.2 per cent gain for energy stocks. Brent crude, the international oil marker, climbed 5.8 per cent to $64.29 a barrel, rebounding from its biggest weekly fall since October.

The moves came as a giant container ship remained stuck on the Suez Canal after blocking the quickest seaborne route between Europe and Asia for more than a day. Before Wednesday, Brent had fallen 15 per cent since early March.

“The oil market sell-off has been given a reprieve,” said Stephen Brennock of oil broker PVM. “Price support is coming courtesy of a transport blockage in one of the world’s critical chokepoints for the oil trade.”

But Brennock warned that “market sentiment will likely struggle to shake off its newfound bearish trend”, as the outlook for demand was clouded by worsening pandemic trends in Europe.

Technology stocks were out of favour on Wall Street after the IHS Markit purchasing managers’ index for March showed business activity in the US manufacturing and services sectors was booming, lifting stocks whose fortunes are pegged to a reopening of the global economy.

The first reading of the manufacturing PMI, which is a gauge of sentiment and order levels among factory bosses, rose to a two-month high of 59, well above the 50 watermark that separates expansion from contraction. The same index for the services sector hit an 80-month high of 60.

“The vaccine rollout, the reopening of the economy and an additional $1.9tn of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multiyear highs,” said Chris Williamson, chief business economist at IHS Markit.

Cyclical sectors such as industrials and financial rose on the S&P 500, climbing 1.8 per cent and 1.5 per cent respectively, while the tech-focused Nasdaq Composite equity index slid 0.8 per cent.

In Europe, sentiment was weaker amid growing coronavirus restrictions, delayed vaccine rollouts and a plan by Brussels to tighten jab exports. The region-wide Stoxx 600 index was little changed for the day although European energy stocks rose.

The European Commission is readying proposals to widen the basis for stopping shipments of Covid-19 vaccines to countries that import from the EU but refuse to export their own vaccine production.

IHS’s manufacturing PMI for Europe soared to a record high of 62.4 for March in the first reading of the survey, up from 57.9 in February.

“This is probably a temporary effect as we know that many European countries are now intensifying their lockdowns,” said Peter Westaway, chief economist at Vanguard Europe. “We are still looking at a pretty poor overall picture for the months to come.”

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