Oil fuels shares plunge
PLUNGING global oil prices have fuelled a fresh wave of negativity in share markets, with mounting fears concerted efforts to limit supplies are doing little to halt a crude glut.
Australia’s benchmark ASX 200 index suffered its worst session for the year, tumbling 1.6 per cent to 5665.7 points — a four-month low — as energy and mining stocks copped a belting.
Local investors took their cues from a Wall Street session overnight on Tuesday in which the Dow Jones Industrial Aver- age dipped 0.3 per cent.
While this was a minor setback, it was nonetheless its biggest fall for a month amid an otherwise glittering run for US bulls. Earlier, Brent crude — the global benchmark — slid 2 per cent to $US46.02 a barrel, its lowest price since November 15, while West Texas Intermediate hit a nine-month low of $US43.23.
Exposed sectors responded in kind — energy stocks slumped 2.6 per cent while the materials sector, which includes heavyweight miners BHP and Rio Tinto, was off 2.5 per cent.
Electricity and gas retailer Origin Energy shed 3.1 per cent to $6.77, while oil and gas producer Woodside Petroleum gave up 2.1 per cent to $29.29.
Only the defensive healthcare sector avoided the carnage, closing marginally higher.
The slump comes as the 14member Organisation of the Petroleum Exporting Countries and a collective of major non-OPEC producers, including Russia, face fresh hurdles to their campaign to shore up crude prices.
Libya and Nigeria, both exempt from the cartel’s output restrictions, have ramped up oil production as they bounce back from supply disruptions sparked by militants and protesters, filling the gap created by OPEC’s May accord much more quickly than expected.
All the while, US drillers continue to power ahead, with the number of operational oil rigs across North America rising for a 22nd straight week.
Another bout of volatility looms today on the back of the scheduled overnight release of US weekly inventory figures.
Analysts said OPEC’s message that compliance in its accord had been strong was being overshadowed by evidence of rising US stockpiles.
CMC Markets chief market analyst Ric Spooner said oil pri- ces would have been much lower had OPEC not agreed to extend its production curbs of 1.8 million barrels a day into 2018. At the low $US40s, crude prices appeared close to finding a floor, he said.
“As far as US shale producers are concerned, prices are the key factor. At these levels, you’d suspect it would be getting harder for them to increase production,” Mr Spooner said.
Mr Spooner said the slide on the local market also appeared consistent with larger global investors reducing their exposure to Australia on the expectation of a prolonged rout in commodity prices.