European stocks ended higher on Friday, as buoyant pharmaceutical shares eclipsed a drop in cyclical mining and industrial sectors hit by renewed economic fears, while energy shares tumbled along with oil.

The FTSEurofirst 300 index of top European shares closed 1.1 percent higher at 862.07 points.

Although it gained 13 percent during the week, the index dropped 7 percent in November, recording a ninth month of losses in what has been a torrid 2008 for equities worldwide.

Pharma stocks made strong gains on Friday, with GlaxoSmithKline up 5.1 percent and Sanofi-Aventis up 4.5 percent. Novartis , whose CEO said the company could increase its dividend and also resume share buybacks once it has reduced its debt, gained 4.4 percent.

The sector rallied after the publication of a long-anticipated EU report on generic competition. Although Competition Commissioner Neelie Kroes said preliminary results showed competition in the pharmaceuticals industry “does not work as well as it should”, traders said the absence of specific penalties in the report brought some relief to pharma stocks.

Energy firms such as Total and BP dropped 0.7-2.6 percent as oil prices sank below $52 a barrel on signs OPEC would defer cutting production when it meets this weekend in Cairo.

Industrials were also among the biggest losers, with Siemens down 3.8 percent and Alstom down 6 percent.

Despite the market’s recovery during the week, analysts remain wary about a potential “Christmas rally” this year.

“The volatility is not about to come down immediately. The economic newsflow is just too horrible. It’s too early to call for a straight market rally at this point,” said Arthur van Slooten, strategist at Societe Generale, in Paris.

“With deflation fears, risky assets have been pricing in the worst. But it doesn’t mean that all of a sudden, from now on you have a straight way up. We know that the newsflow will be terrible, but we need at least some sort of indication that the bottom is maybe in sight,” he said.

“Next year’s first quarter will really look awful in terms of macro data and with analyst further downgrading their estimates and companies finally becoming realistic in their own guidance. That in itself could provide us with a sound basis to build from there.”

Miners took a beating on Friday, adding to recent sharp losses. Anglo American shed 2.4 percent and Xstrata dropped 3 percent.

Prices for copper, a key industrial metal, slipped as tumbling industrial production data from Japan highlighted bleak prospects for demand in an oversupplied market, while prices for aluminium also fell, hit by the rising fears about the health of the embattled auto sector.

“There is little doubt that the outlook for metals demand is grim for at least the next few quarters and prices have fallen to levels that reflect market expectations for further stock increases,” Barclays Capital said in a note.

Automakers lost ground, with Volkswagen down 5 percent, BMW off 3.4 percent and Renault down 4.8 percent.

“Going into the weekend, one can’t help but worry that we are only a heartbeat away from the next scare story,” said Chris Hossain, senior sales manager at ODL Securities.

“The markets appear to have been buoyed by the feeling that the U.S. will be bailing out the auto industry, but one has to wonder how much more the global governments can continue to support troubled industries,” he added.

Around Europe, Germany’s DAX index eked out a gain of 0.1 percent, UK’s FTSE 100 index rose 1.5 percent and France’s CAC 40 added 0.4 percent.

By Blaise Robinson
PARIS, Nov 28 (Reuters)

No Spike in Oil Price Following IEA “Third Oil Shock” Announcement

By Dan Denning

The International Energy Agency (IEA) gave the oil market a boost when it said supply would remain tight and that the world was in the middle of its third oil shock. Thanks for the newsflash IEA.

“With oil prices hitting 140 U.S. dollars,” said IEA Executive Director Nobuo Tanaka, “we are clearly in the third oil shock, with prices affecting economic growth, truck drivers are going on strike. Airlines are closing down.”

The IEA said high prices would discourage demand for oil in the short-term, but in the medium-term, “demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture.”

The IEA remains in a remarkable state of delusion about the world’s ability to increase oil supply. It projects that global demand will grow from 86.8 million barrels per day this year (with supply of around 88mbpd) to 94.14mpbd in 2013. That’s an increase in global production of 8.5%.

Let’s see. Where will that come from? Well, assuming there is no decline in current production, you could double Iraq’s production, throw in 2mpbd from the Saudis and their spare capacity and new fields, chuck out Chavez and get Venezuela humming again, and bring on-stream a lot of the deep-water projects…and maybe, just maybe you’d get there.

Christophe de Margerie, the CEO of French oil company Total (FP), says 94mpd is an optimistic forecast in ten years, and probably the peak anyway. “We will have to fight against the natural decline of (present) oil fields,” he said “It will not go smoothly.”

You can fight against some things…love handles, injustice, heavy traffic. But if you pick a fight with something like gravity, you’re going to lose every time, and probably injure yourself. The natural decline in the production on an oil field can be “fought” with some methods to enhance recovery. But depletion is depletion. They don’t make Botox for oil fields.

In any event, the IEA announcement did not create a super spike in oil. This leads us to believe oil may be running out of gas, at least in the short-term. Event-driven price increases are almost all played out, barring an Israeli attack on Iran. If that happens, all bets are off. Keep in mind, though, that oil prices actually fell when the first Gulf War began. They did the same in 2003. We’re not saying the same would happen this time, especially if the Iranians tried to clog up the Strait of Hormuz.

But the real reason prices may have topped out is that the world is having a hard time coping with $140 oil. Could it live with $200 oil? Who could afford it? At its current price, oil is killing the airlines and destroying truck drivers. Also, gold seems to be catching up with oil as the most attractive anti-inflation investment alternative.

Source: No Spike in Oil Price Following IEA “Third Oil Shock” Announcement