Energy stocks hit in Asia as oil sinks
ENERGY firms sank in Asian trade yesterday as oil prices extended the previous day's sharp losses on profittaking and fresh worries about a global oversupply.
Even a fall in the dollar was unable to stop the slide after Iraq flagged a pick-up in output and rebels in key producer Nigeria announced a ceasefire. Investors were also treading water as they awaited a key speech from Federal Reserve boss Janet Yellen, hoping for some insight into the state of the US economy and the bank's plans for its next interest rate hike.
After a seven-day rally that put oil into a bull market – a 20 percent jump from recent lows - the commodity has taken a hiding since the start of this week.
Yesterday, West Texas Intermediate fell 0.9pc to US$47.00 and Brent lost 0.7pc to $48.84.
On August 22, WTI shed 2.9pc and Brent 3.4pc after Iraq signalled a likely increase in output from Kirkuk's oil fields under a deal between the region and the country's new oil minister.
At the weekend the Niger Delta Avengers announced a conditional ceasefire and agreed to hold talks with the government following months of attacks on key oil and gas facilities.
The two developments follow a surge that helped Brent last week break above $50 for the first time since early July and analysts warned of further drops.
“We’re seeing a bit of profit-taking,” Ric Spooner, chief analyst at CMC Markets in Sydney, told Bloomberg News.
“It's about how far the price had climbed in relation to the current underlying fundamental situation. There is still plenty of supply around. It wouldn’t be surprising to see this downtrend continue and it’s possible we could see some sort of basing around $44-$45.”
Among energy firms, Japan's Inpex and JX Holdings each fell more than 2pc, while in Hong Kong afternoon trade CNOOC shed 1.5pc and Petro-China 1.1pc. Sydney-listed Woodside Petroleum eased 0.4pc.
On regional stock markets, Tokyo’s Nikkei finished 0.6pc lower, while Hong Kong was flat. Shanghai added 0.2pc and Sydney closed 0.7pc higher while Seoul tacked on 0.4pc.
The dollar struggled to maintain the August 22 rally despite weekend comments from Fed vice chair Stanley Fischer that fanned speculation a rise could come before the end of the year. They were followed by similarly hawkish noises from two regional bank presidents.
The greenback fell to 99.94 yen at one point in Tokyo yesterday. It later edged back to 100.07 yen from 100.32 yen in New York, while it was also down against most high-yielding currencies including the Australian dollar and South Korean won.
Observers expect markets to remain cautious leading up to Ms Yellen’s speech at the annual global central bankers’ symposium at Jackson Hole in Wyoming on August 26.
The speech “remains the headline event this week and I think we could continue to see an element of caution in the markets in the lead-up to this”, Craig Erlam, senior market analyst at OANDA, said in a note.
“Investors are still not buying a 2016 rate hike. The only question is whether [Yellen will] strongly hint at a hike this year or indicate that holding off to early next year may be warranted.” –
‘It wouldn’t be surprising to see this downtrend continue’
Ric Spooner CMC Markets