Tag Archives: Oil

Oil surges to one-and-a-half-year high, Fed rate increase looms

A gas station attendant pumps fuel into a customer's car at PetroChina's petrol station in Beijing, China,

By Marc Jones

LONDON (Reuters) – Oil prices surged to their highest since mid-2015 and U.S. Treasury yields hit a more than two-year peak on Monday after the world’s top crude producers agreed to the first joint output cut since 2001.

Coming at the start of a week when the United States is expected to raise interest rates for the only the second time since the global financial crisis, the weekend agreement between the Organization of Petroleum Exporting Countries and key non-OPEC states set the markets alive.

Brent oil futures soared 5 percent to top $57 a barrel for the first time since July 2015 and U.S. crude leapt above $54 a barrel to send global inflation gauges spiking as well.

There was particular surprise as Saudi Arabia, the world’s number one producer, said it may cut its output even more than it had first suggested at an OPEC meeting just over a week ago.

“The original OPEC deal pointed to a fairly lumpy 3 percent cut (in production), so this suggests there is a bit more upside for oil prices,” said Neil Williams, chief economist at fund manager Hermes.

On the rise in bond yields, which tend to set global borrowing costs, he added: “The Fed hike is mostly baked in so when we do get it, it will be more about the statement.”

European oil companies jumped more than 2 percent on the oil surge and helped the pan-regional STOXX 50 index add 0.1 percent, having just had its best week in exactly five years.

Bond markets in contrast were under heavy pressure. Euro zone government bond yields were sharply higher with German Bunds up 5 basis points at 0.40 percent as U.S. yields topped 2.5 percent for the first time since October 2014.

“We have seen OPEC and non-OPEC producers agreeing, which is boosting reflation expectations around the world,” said Chris Weston, an institutional dealer with IG Markets.

In another sign of the reflation trade, breakeven rates –the gap between yields of five-year U.S. debt and a matching tenor in inflation-protected securities — were at two-month highs.

Wall Street futures, meanwhile, pointed to the main U.S. indexes barely budging when they resume, having enjoyed an uninterrupted gain of nearly 4 percent over the past six sessions.

FED UP

Focus was also on the currency markets as the dollar rose to its highest since February against the Japanese yen, before what is almost certain to be the first rate hike of the year from the U.S. Federal Reserve on Wednesday.

Japan’s yen also tends to suffer when oil prices rise, since the country is a major importer.

The Norwegian crown, Canadian dollar and Russia rouble were the big gainers from the oil deal. The rouble rose almost 2 percent against both the dollar and euro as Russia shares, which have rocketed almost 90 percent since January, hit the latest in a string of record highs.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent after posting its biggest weekly rise in nearly three months last week.

China stocks suffered their biggest fall in six months as blue chips were knocked by fresh regulatory curbs to rein in insurers’ aggressive stock investments and rising bond yields prompted profit-taking in equities.

The blue-chip CSI300 index fell 2.4 percent, to 3,409.18 points, while the Shanghai Composite Index lost 2.5 percent to 3,152.97 points.

China’s insurance regulator, which recently warned it would curb “barbaric” acquisitions by insurers, said late on Friday it had suspended the insurance arm of China’s Evergrande Group from conducting stock market investment.

Concerns were also rumbling about U.S.-Sino relations after Donald Trump re-ignited controversy over Taiwan.

“I fully understand the ‘one China’ policy, but I don’t know why we have to be bound by a ‘one China’ policy unless we make a deal with China having to do with other things, including trade,” Trump said in an interview with Fox News.

Emerging markets are already bracing for a difficult run if U.S. rate hikes push up the dollar and global bond yields.

Turkey’s lira has borne the brunt of much of the pressure in recent weeks, and it took another 1 percent hit alongside a sharp fall in Turkish bonds after data showed the country’s economy suffering its first contraction since 2009.

Gold, meanwhile, which had a bumper first half of 2016, hit its lowest level since early February at $1,152 an ounce.

(Additional reporting by Saikat Chatterjee in Hong Kong, editing by Larry King)

Islamic State attacks Kirkuk as Iraqi forces push on Mosul

Forces takce cover behind rocks

By Maher Chmaytelli and Michael Georgy

BAGHDAD (Reuters) – Islamic State launched a major counter-attack on the city of Kirkuk on Friday as Iraqi and Kurdish forces pursued operations to seize territory around Mosul in preparation for an offensive on the jihadists’ last major stronghold in Iraq.

Islamic State’s assault on Kirkuk, which lies in an oil- producing region, killed 18 members of the security forces and workers at a power station outside the city, including two Iranians, a hospital source said.

Crude oil production facilities were not targeted and the power supply continued uninterrupted in the city. Kirkuk is located east of Hawija, a pocket still under control of Islamic State that lies between Baghdad and Mosul.

With air and ground support from the U.S.-led coalition, Iraqi government forces captured eight villages south and southeast of Mosul. Kurdish forces attacking from the north and east also captured several villages, according to statements from their respective military commands overnight.

The offensive that started on Monday to capture Mosul is expected to become the biggest battle fought in Iraq since the U.S.-led invasion in 2003.

The United Nations says Mosul could require the biggest humanitarian relief operation in the world, with worst-case scenario forecasts of up to a million people being uprooted.

About 1.5 million residents are still believed to be inside Mosul. Islamic State has taken 550 families from villages around Mosul and is holding them close to IS locations in the city, probably as human shields, a spokeswoman for the U.N. human rights office said in Geneva.

The fighting has forced 5,640 people to flee their homes so far from the vicinity of the city, the International Organization for Migration said late on Thursday.

The Turkish Red Crescent said it was sending aid trucks to northern Iraq with food and humanitarian supplies for 10,000 people displaced by fighting around Mosul.

EXPLOSIVE DEVICE

A U.S. service member died on Thursday from wounds sustained in an improvised explosive device blast near the city.

Roughly 5,000 U.S. forces are in Iraq. More than 100 of them are embedded with Iraqi and Kurdish Peshmerga forces, advising commanders and helping them ensure coalition air power hits the right targets, officials say.

However, the Kurdish military command complained that air support wasn’t enough on Thursday.

“Regrettably a number of Peshmerga have paid the ultimate sacrifice for us to deliver today’s gains against ISIL. Further, Global Coalition warplane and support were not as decisive as in the past,” the Kurdish command said in a statement.

Prime Minister Haidar al-Abadi, addressing anti-Islamic State coalition allies meeting in Paris via video link, said the offensive was advancing more quickly than planned.

A senior Kurdish military official told Reuters the offensive by the Iraqi and Kurdish forces was moving steadily as they push into villages on the outskirts of Mosul.

But he expected the offensive to slow down once they approach the city itself, where Islamic State had built trenches, dug tunnels and might use civilians as human shields.

“I believe it will be more clear within the coming weeks once we get rid of those villages and we come closer to the city how quickly this war will end. If they (Islamic State) decide to defend the actual city then the process will slow down.”

Once inside Mosul, Iraqi special forces would have to go from street to street and from neighbourhood to neighbourhood to clear explosives and booby traps, the official said.

Islamic State denied that government forces had advanced. Under the headline “The crusade on Nineveh gets a lousy start,” the group’s weekly online magazine Al-Nabaa said it repelled assaults on all fronts, killing dozens in ambushes and suicide attacks and destroying dozens of vehicles including tanks.

HOLED UP

In Kirkuk, Islamic State attacked several police buildings and a power station in the early hours of Friday and some of the attackers remained holed up in a mosque and an abandoned hotel.

The militants also cut the road between the city and the power station 30 km (20 miles) to the north.

Several dozen took part in the assault, according to security sources who couldn’t confirm a claim by Islamic State that it had taken a Kurdish police officer hostage.

The assailants in Kirkuk came from outside the city, said the head of Iraq’s Special Forces, Lieutenant General Talib Shaghati, speaking on a frontline east of Mosul.Iran’s Foreign Ministry spokesman Bahram Ghasemi reacted to the killing of the Iranian citizens in Kirkuk, saying these attacks are “the last breath of terrorists in Iraq”.

At least eight militants were killed, either by blowing themselves up or in clashes with the security forces, the sources said. Kurdish forces had dislodged the militants from all the police and public buildings they had seized before dawn, they said.

MACHINE GUN

Kurdish NRT TV footage showed machine gun fire hitting a drab two-floor building that used to be a hotel, and cars burning in a nearby street.

Islamic State claimed the attacks in online statements, and authorities declared a curfew in the city where Kurdish forces were getting reinforcements.

Kurdish Peshmerga fighters took control of Kirkuk in 2014, after the Iraqi army withdrew from the region, fleeing an Islamic State advance through northern and western Iraq.

On the frontline south of Mosul, thick black smoke lingered from oil wells that Islamic State torched to evade air surveillance, in the region of Qayyara.

The army and the U.S.-led coalition took back this region in August and are using its air base as a hub to support the offensive on Mosul.

“Long live Iraq, death to Daesh,” was painted on a wall near an army checkpoint there, referring to an Arabic acronym of Islamic State.

The army Humvees at the checkpoint carried Shi’ite flags, revealing that the soldiers of this unit belonged to Iraq’s majority community.

Flying Shi’ite flags in the predominantly Sunni region and the participation of the Popular Mobilization Force, a coalition of mostly Iranian-trained militias, in a support role to the army has raised concerns of sectarian violence and revenge killings during or after the battle.

The nation’s top Shi’ite cleric, Grand Ayatollah Ali al-Sistani, on Friday renewed a call to spare civilians.

“All those who are participating in the battle have to respect the humanitarian principles and refrain from seeking vengeance,” said a sermon delivered in Sistani’s name in the holy Shi’ite city of Kerbala by one of his representatives.

(Additional reporting by Michael Georgy near Qayyara, Stephen Kalin east of Mosul and Saif Hameed in Baghdad; editing by Giles Elgood)

Nasdaq hits record high after Fed leaves rates unchanged

Floor governor Giacchi gives a price for Noble Midstream Partners LP, during the company's IPO on the floor of the New York Stock

By Yashaswini Swamynathan

(Reuters) – The Nasdaq hit a record intraday high on Thursday amid broad gains in U.S. stocks, a day after the Federal Reserve stood pat on interest rates.

While the risks to economic outlook were roughly “balanced”, the Fed maintained rates as inflation continued to run below its 2 percent target and members saw room for improvement in the labor market.

The central bank slowed the pace of future hikes and cut its longer run interest rate forecast to 2.9 percent from 3 percent, but sent a strong signal for a move by the end of this year.

“The Fed probably appeared less hawkish than what the markets had expected,” said Ryan Larson, head of equity trading at RBC Global Asset Management in Chicago. “I think the market continues to be focused on the Fed pushing a hike for later as a good thing rather than bad.”

The consensus among economists is for a hike in December as the Fed’s November meeting comes right around the U.S. Presidential elections.

The probability of a November hike stands at a modest 12.4 percent, and rises to 58.4 percent for December, according to the CME Group’s FedWatch tool.

The dollar index dropped 0.6 percent on Thursday, and was on track to mark the second straight day of losses after the central bank’s decision.

Oil prices rose about 1.8 percent as the dollar fell and U.S. crude inventories recorded a surprise drop.

At 9:36 a.m. ET (1336 GMT), the Dow Jones Industrial Average was up 132.52 points, or 0.72 percent, at 18,426.22.

The S&P 500 was up 15.01 points, or 0.69 percent, at 2,178.13.

The Nasdaq Composite was up 32.98 points, or 0.62 percent, at 5,328.22, after rising as much as 0.65 percent to a record of 5329.92.

The S&P energy index surged 1.33 percent and was the top gainer among the 11 major sectors of the benchmark index.

Adding some support to the Fed’s plans for at least one hike this year was a report that showed the number of Americans applying for unemployment last week fell to a two-month low.

Shares of Apple rose 0.9 percent to $114.56 and was the top influence on the S&P and the Nasdaq after Nomura and RBC raised their price targets.

Red Hat rose 6.7 percent to $82.27 after the Linux operating system distributor reported second-quarter revenue and profit that beat market expectations.

One weak spot was Jabil Circuit, which dropped nearly 6 percent to $22.34 after the contract electronics maker said it intended to realign its business at a cost of $195 million over two years.

Advancing issues outnumbered decliners on the NYSE by 2,552 to 185. On the Nasdaq, 1,804 issues rose and 429 fell.

The S&P 500 index showed 26 new 52-week highs and no new lows, while the Nasdaq recorded 80 new highs and three new lows.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Don Sebastian)

New Caspian oil fields to add to glutted global market

Oil rig and infrastructure of D Island are pictured at Kashagan offshore oil field in Caspian sea in western Kazakhstan

By Olga Yagova and Alla Afanasyeva

MOSCOW (Reuters) – Two new Caspian Sea oil fields are due by the end of this year to add significant volumes of crude to a world market already in glut, possibly depressing prices just as producers including Russia talk about reviving them.

According to industry sources and a loading schedule seen by Reuters, the Kashagan field in Kazakhstan’s sector and Lukoil’s Filanovsky field in the Russian sector – both of which are scheduled to come on stream soon – will together produce at least 200,000 barrels of crude per day (bpd) by the end of 2016.

By the end of next year, according to targets previously announced by the fields’ operators, Kashagan and Filanovsky will between them produce about 500,000 bpd, equivalent to about 0.5 percent of global production.

Faced with world oil prices languishing at around $50 per barrel, Saudi Arabia and Russia – the world’s two biggest crude exporters – agreed on Monday to cooperate in world oil markets. Though they will not act immediately, they said they could limit output in the future.

The agreement pushed up prices on expectations that exporters would work together to tackle the glut. However, on Thursday Brent crude <LCOc1> was trading around $48.50.

The Caspian crude will come on top of extra oil from Iran, which is working to raise its exports back to around 2.4 million bpd, the amount it used to sell before sanctions aimed at curbing its nuclear programme were imposed. International sanctions were lifted earlier this year on implementation of a deal between Tehran and world powers.

Production at the long-delayed and hugely expensive Kashagan offshore project – the world’s biggest oil find in 35 years – will start in October this year, according to industry sources who have seen Kazakh Energy Ministry documents on the field.

Output will initially be 75,000 bpd in October, rising to between 150,000 and 180,000 in the November-December period of this year, the sources told Reuters, citing the ministry documents.

Asked about the plan, a spokeswoman for North Caspian Oil Company, the Kashagan operator, declined to give a breakdown of production figures for this year.

The Kashagan consortium comprises China National Petroleum Corp., Exxon Mobil of the United States, Italy’s Eni, Anglo-Dutch Royal Dutch Shell, Total of France, Inpex of Japan and Kazakh firm KazMunaiGas.

The project began producing oil in September 2013 but stopped a few weeks later after gas leaks in its pipelines.

$55 BILLION INVESTMENT

Filanovsky will export around 50,000 bpd of CPC blend, a light Caspian crude, between October and December this year, according to a loading schedule, a copy of which was obtained by Reuters.

Representatives of Lukoil confirmed that production would start this year, but declined to give figures for volumes.

The planned new Caspian production from the two members of the Commonwealth of Independent States (CIS), which groups most ex-Soviet countries, shows how difficult it will be for exporters to curb output, especially when commercial interests outweigh the wishes of government officials.

The Kashagan field is five years behind schedule and costs have rocketed. By the end of 2015, the amount invested in its first phase had reached $55 billion, according to the project’s operator.

“While Russia is lulling the world with stories about a freeze in production in order to stabilise prices, on its territory and in the countries of the CIS new fields are continuing to come on stream and it doesn’t look like anyone can do anything to stop it,” said an industry source who spoke on condition of anonymity.

(Editing by Christian Lowe and David Stamp)

Netanyahu says Netherlands, Israel to improve water, gas supply to Gaza

Israel's Prime Minister Benjamin Netanyahu attends the weekly cabinet meeting at his office in Jerusalem

AMSTERDAM (Reuters) – The Dutch government will assist Israel in improving water and gas supplies to energy-strapped Gaza, Prime Minister Benjamin Netanyahu said on Tuesday during a visit to the Netherlands.

Netanyahu said that while his government is in a conflict with “terrorists” in the occupied territories, Israel still wishes to improve the quality of life for most people living there.

“We have no battle, no qualms with the people of Gaza”, he said. “The first step is to improve the supply of energy and water to Gaza, including laying a gas pipeline.”

He said he was publicly committing to making it happen.

Gaza faces an energy crisis due to damage to its electric network from past conflicts, together with Israel’s coastal blockade and other sanctions and restrictions.

Currently the country has electricity less than half the time, using an 8-hour on, 8-hour off rationing system.

A gas pipeline from Israel could allow Gaza’s power plant to double generation from around 200MW at present.

Water supplies to Gaza and the Israeli-occupied West Bank have long been a point of tension between the neighbours, with the Palestinians saying Israel prevents them from accessing adequate water at an affordable price.

Netanyahu did not elaborate on details of the gas pipeline plan, saying only the Dutch, with their long history of water management, would help.

(Reporting by Toby Sterling and Anthony Deutsch; Editing by Jeremy Gaunt)

Oil rally under pressure; record Saudi output offsets U.S. drawdown

Oil field

By Barani Krishnan

NEW YORK (Reuters) – Oil’s near week-long rally was under pressure on Wednesday after an unexpected drawdown in U.S. crude and gasoline stocks was offset by worries that Saudi Arabia was cranking output to record highs even as OPEC talked of ways to ease a global glut.

U.S. West Texas Intermediate (WTI) crude futures <CLc1> were down 5 cents at $46.53 a barrel by 1:03 p.m. EDT (1703 GMT), after trading as much as 21 cents higher.

Brent crude futures <LCOc1> rose by 42 cents to $49.65 a barrel. It reached five-week highs of $49.75 earlier.

WTI’s discount to Brent <WTCLc1-LCOc1> widened to a six-month high, raising the export potential for U.S. crude.

Oil rallied about 11 percent over the past four sessions since Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, stoked speculation the group was ready to reach an output freeze agreement with non-OPEC producers.

The markets briefly extended gains after the U.S. Energy Information Administration (EIA) said domestic crude inventories fell 2.5 million barrels last week, surprising analysts who had expected a build of 522,000 barrels. [EIA/S]

Gasoline stockpiles also fell 2.7 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

But the market’s upside was capped by a Reuters report that said Saudi Arabia could boost crude output in August to new records at 10.8-10.9 million bpd, overtaking Russia’s production, even as OPEC aims for a pact to curb global output.

The Saudis told OPEC they pumped 10.67 million bpd in July, versus their previous record of 10.56 million in June 2015. [OPEC/M]

Saudi-based industry sources said earlier in the year they expected the kingdom’s output to edge near record highs to meet summer demand for power. But they said it was unlikely that Saudi output will flood the market.

“One certain thing to be aware of is the Reuters report that Saudis may increase production to new record highs pushing near 11 million barrels per day,” said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

“With the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output,” Zahir said.

Before last week’s drawdown, U.S. crude stockpiles had risen unexpectedly in three previous weeks. The U.S. oil drilling rig count has also risen without pause for seven weeks, signaling more production ahead. [RIG/U]

Reports of refinery outages in the United States, including a crude unit at Exxon Mobil Corp’s <XOM.N> 502,500 barrel per day (bpd) plant at Baton Rouge in Louisiana, added to the market’s downside. [REF/OUT]

Traders will be on the lookout for a U.S. Federal Reserve statement due at 2:00 p.m. (1800 GMT) to gauge if interest rates are to rise soon.

(Additional reporting by Amanda Cooper in LONDON and Henning Gloystein in SINGAPORE; editing by Jason Neely and Marguerita Choy)

Oil prices slipped with rise in U.S. gasoline inventories

Oil and gas tankers are anchored off the Marseille harbour, southeastern France,

LONDON (Reuters) – Oil prices slipped on Thursday after a rise in U.S. gasoline inventories helped push U.S. oil stocks to a record high, reinforcing worries of a global oversupply.

U.S. crude and oil product stocks rose 2.62 million barrels in the week to July 15 to an all-time high of 2.08 billion barrels, the U.S. Energy Department said.

U.S. gasoline stocks  rose 911,000 barrels in the week, against a forecast for unchanged, and were well above the upper limit of the average range, data from the U.S. Energy Information Administration showed.

Tamas Varga, oil analyst at London brokerage PVM Oil Associates, said the build in U.S. oil inventories reflected a very well supplied global market.

“There is lots of oil around,” said Varga. “Market strength is not sustainable.”

U.S. light sweet crude for September delivery the new front-month contract from Thursday, was down 20 cents at $45.55 a barrel by 1350 GMT. The August contract expired on Wednesday after rising 29 cents, or 0.7 percent, to settle at $44.94 a barrel.

Brent crude was down 15 cents at $47.02 a barrel.

U.S. crude oil stock fell for a ninth consecutive week last week, dropping 2.3 million barrels.

But at 519.5 million barrels, crude oil inventories are at historically high levels for this time of year, the EIA said.

ABN AMRO senior energy economist Hans van Cleef said investors were concerned by the global oversupply and high inventories:

“Near-term there are still some downside risks,” van Cleef said, forecasting Brent could slip around $5 lower towards $42 or $43 a barrel.

July is the peak of summer when Americans traditionally take to the road, driving up gasoline demand.

A glut of refined products has worsened an already-grim outlook for U.S. crude oil for the rest of the year and the first half of 2017, traders warned this week, as the spread between near-term and future delivery prices reached its widest in five months.

(Additional reporting by Aaron Sheldrick in Tokyo; Editing by Dale Hudson)

Oil prices dive as Britain votes to leave EU

Voters for leaving EU, dropping oil prices

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices slumped by more than 6 percent on Friday after Britain voted to leave the European Union, raising fears of a broader economic slowdown that could reduce demand.

Financial markets have been worried for months about what Brexit, or a British exit from the European Union, would mean for Europe’s future, but were clearly not fully factoring in the risk of a leave vote.

British Prime Minister David Cameron, who campaigned to remain in the EU, said he would stand down by October.

Brent crude <LCOc1> was down 4.85 percent or $2.47 at $48.44 a barrel at 1140 GMT. U.S. crude <CLc1> was down 4.6 percent or $2.31 at $47.80 a barrel.

Earlier in the day, both contracts were down by more than $3, or over 6 percent, the biggest intra-day declines for both since April 18, when a meeting of top global oil producers failed to agree on an output freeze.

Sterling <GBP=> sank 10 percent in value to its weakest since the mid-1980s. The FTSE 100 <.FTSE> fell more than 8 percent at the open, with banks among the hardest hit, but by 1140 GMT had recovered some ground to stand 4.3 percent lower.

“The global uncertainly that (the vote) is likely to unleash is likely to have a potentially negative effect on GDP growth, not only in the UK, but potentially in Europe,” said Michael Hewson, chief market analyst CMC markets.

“Obviously we don’t know that yet, but certainly in the context of where we were 24 hours ago, the knee-jerk reaction is to sell on the reality,” he added.

Some analysts said oil could face further downward pressure.

“Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down towards $45 or lower before we have seen the worst of it,” Bjarne Schieldrop, chief commodity analyst at SEB, said in note to clients.

“Higher risk aversion is likely to make it hard for prices to regain the $50 per barrel mark in anything like the near future,” said Commerzbank analyst Carsten Fritsch.

BP <BP.L> said on Friday its headquarters would remain in the United Kingdom, despite the vote.

The vote to break with Europe is set to usher in deep uncertainty over trade and investments.

“Any further downturn in the economy or volatility in the oil price could cause further distress in the sector and in particular further project….deferrals might have significant consequence for the service sector who also rely on mobility of employees around the world,” PwC UK and EMEA oil and gas leader Alison Baker said.

(Additional reporting by Aaron Sheldrick in Tokyo and Florence Tan in Singapore; editing by Jason Neely)

Stock futures drop after Britons vote to abandon EU

Trader at BGC

By Tanya Agrawal and Yashaswini Swamynathan

(Reuters) – U.S. stock futures slid in premarket trading on Friday after Britain’s vote to quit the European Union delivered the biggest blow to the global financial system since the 2008 financial crisis.

S&P 500 futures and Nasdaq futures were down about 3.5 percent while those on the Dow Jones industrial average were off 2.8 percent, indicating Wall Street will open sharply lower.

By 8 a.m. ET (1200 GMT), the number of contracts traded on S&P futures had neared their daily average for the past year.

Investors worried about damage to the world economy sought refuge in the dollar and other safe-harbor assets such as gold and U.S. Treasury bonds, while dumping riskier shares. The yield on the U.S. 10-year bond hit its lowest since 2012.

Banks were among the biggest losers.

Britain’s FTSE 100 stock index was down 4.5 percent in early afternoon trading. Asian stocks also tumbled.

Amid the turmoil, sterling hit a 31-year low in its biggest intraday percentage fall on record and Prime Minister David Cameron said he would step down by October.

“The markets are going to trade violently and erratically through the day and it’s going to be a challenging equity environment until investors get greater clarity on the matter,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

Citigroup <C.N>, Bank of America <BAC.N>, JPMorgan <JPM.N> and Goldman Sachs <GS.N> slumped by between 6.2 percent and 7.2 percent. U.S. banks have large operations in London.

Trading in S&P 500 and Nasdaq futures was halted briefly overnight after they fell more than 5 percent, triggering limit thresholds.

U.S. short-term interest rate futures rose amid speculation the Federal Reserve could cut interest rates to help shield the economy from any global fallout.

Investors have been waiting for the Fed to raise borrowing costs as the economy improves.

“It’s too early to assess whether we will have a negative interest rate environment. However, given the knee-jerk global response in the markets, it would seem that low interest rates are here to stay,” said Bakhos.

Fed Chair Janet Yellen said earlier in the week that an exit of Britain from the EU would have “significant repercussions” on the U.S. economic outlook.

Futures on the VIX <.VIX> volatility index – known as Wall Street’s fear gauge – surged 42.3 percent to 24.52, above its long-term average of 20.

The market was already expected to be volatile on Friday as traders adjust portfolios to account for an annual reconstitution of the widely followed Russell stock indexes.

Oil prices also slumped, dropping about 5 percent, the biggest drop since early February. [O/R] Exxon <XOM.N> and Chevron <CVX.N> were down about 3 percent each.

Among gold miners, Barrick Gold <ABX.N> was up 9.3 percent and Newmont Mining <NEM.N> was up 8 percent.

Apple <AAPL.O>, which got more than a fifth of its revenue from Europe last quarter, was down 2.7 percent at $93.48. Facebook <FB.O> was down 3.4 percent at $111.19

U.S. stocks had risen in recent sessions as investors bet that Britain would remain part of the EU.

As of Thursday’s close, the S&P 500 index had risen 3 percent since the start of the year.

Futures snapshot at 8:10 a.m. ET (1210 GMT):

* S&P 500 e-minis <ESc1> were down 73.25 points, or 3.48 percent, with 1,612,911 contracts traded.

* Nasdaq 100 e-minis <NQc1> were down 158.5 points, or 3.55 percent, on volume of 156,665 contracts.

* Dow e-minis <1YMc1> were down 504 points, or 2.81 percent, with 207,671 contracts changing hands.

(Additional reporting by Noel Randewich, Richard Leong and Rodrigo Campos; Editing by Alison Williams and Ted Kerr)

Europe steps up North Korea sanctions with oil, finance bans

North Korean leader Kim Jong Un speaks during a ceremony at the meeting hall of the Central Committee of the Workers' Party of Korea

By Robin Emmott

BRUSSELS (Reuters) – The European Union stepped up its sanctions on North Korea on Friday with near-blanket trade and travel bans after Pyongyang’s latest nuclear test and rocket launch, a move going beyond new U.N. Security Council sanctions.

Pyongyang is also banned from selling any oil-related or luxury goods to the European Union, while EU nations cannot invest in the country’s mining, refining and chemical industries.

“Considering that the actions of (North Korea) constitute a grave threat to international peace and security in the region and beyond, the EU decided to further expand its restrictive measures,” the Council said.

North Korea’s latest nuclear test was on Jan. 6. On Feb. 7, it launched a rocket that the United States said used banned ballistic missile technology. Pyongyang said it was a peaceful satellite launch.

The EU measures, which diplomats say are designed to show solidarity with major EU trade partners South Korea and Japan, come on top of asset freezes and travel bans for another 16 North Koreans agreed earlier this year. That puts 66 people and 42 companies under the EU sanctions regime.

EU foreign ministers have reinforced their sanctions several times in recent years to include asset freezes and bans on financing and the delivery of banknotes.

EU countries cannot export arms or metals used in ballistic missile systems and are banned from selling gold, diamonds and luxury goods to North Korea. Joint ventures are outlawed.

However, the impact of the new measures is likely to be limited as trade between the European Union and North Korea fell to just 34 million euros in 2014 from more than 300 million euros a decade ago.

Germany and Sweden are also reluctant to totally isolate North Korea. They have maintained diplomatic ties in Pyongyang since the 1970s, providing humanitarian aid to North Koreans.

(Reporting by Robin Emmott; Editing by Tom Heneghan)