Oil prices cross US$75 per barrel

Drop in US inventories leads to global demand

PETALING JAYA: Oil prices continued to climb to a near 3½-year high, crossing the US$75 per barrel mark on expectations of lower supply.

There are also indications that the United States might impose new sanctions on Iran that might lead to increased geopolitical tensions in the Middle East, according to wire reports.

Brent crude oil rose to US$75.04 per barrel as at press time yesterday.

The rise in crude oil prices is also stemmed from the conflict between Saudi Arabia and Iran-backed Houthis in Yemen.

However, OANDA Corp head of trading for Asia-Pacific Stephen Innes believed that the Saudi Arabia-Yemeni conflict has already been fully-reflected into the oil prices.

“What is happening to the oil price today is a carryover from the prior issues. The next major issue will be the Iran sanctions that will see new money coming into the oil trade. We could possibly see a US$5 rise per barrel. It is a tight trade now that could get a lot of money into the market,” Innes told StarBiz.

He also noted that the two significant suppliers of oil – Russia and Saudi Arabia – have a commitment to follow through supply cuts which would be of significance for the Organisation of the Petroleum Exporting Countries as this would help support prices.

“There is quite a lot of global demand with the drop in inventories in the United States,” he said.

In Malaysia, the FBM KLCI, after hitting a historical high last Thursday on the rising oil prices, continued its correction from such levels.

The benchmark index dropped 15.02 points or 0.80% to 1,865.34 yesterday.

Market breadth was mostly negative, with 574 counters declining and 291 counters gaining while 386 counters remained unchanged.

Some 1.93 billion shares worth RM2.32bil were traded.

Trading in oil and gas stocks on Bursa Malaysia was generally uninspiring and did not track the sentiment on the global oil markets.

UMW Oil & Gas Corp Bhd gained 0.5 sen to 28 sen and Sapura Energy Bhd declined 1.5 sen to 70.5 sen. Hibiscus Petroleum Bhd dropped 3.5 sen to 82.5 sen.

The ringgit weakened further to a one-

month low of 3.9053 to the US dollar with traders attributing the dented sentiment to the coming general election and a rise in US bond yields.

US 10-year Treasury yields settled at 2.966% after hitting 2.998% earlier, which is the highest since January 2014 compared with Malaysia’s 10-year bond yield, which slipped three basis points (bps) to 4.18% after surging 14 bps earlier.

“The higher interest rates in the United States are not great for regional sentiment in general. Malaysian bonds are the main conduit for investors to get currency exposure, so when investors don’t buy bonds then the ringgit will weaken,” Innes said.

“But the ringgit has also been supported by oil prices over the past week-and-a-half or so,” he added.

Innes said that the outlook for the ringgit could brighten in mid-May after the GE on the anticipation that foreign bond market investors would return and fundamentals would remain well supported.

Bloomberg reported that Bank Negara was expected to keep policy on hold for the rest of the year, after March inflation figures that were published last week had missed economists’ estimates.

Innes said the ringgit could likely see further gains after the major uncertain hurdle of the GE was passed.

“In any country, developed or developing, whenever a GE is held, the currency will weaken as anything could change. So, it is within expectations that the ringgit is behaving this way,” he said.