Brent plunges to two-decade low

Oil re­sumes its painful re­treat; global stocks mixed

Kuwait Times - - Business -

HONG KONG: Brent hit a two-decade low yes­ter­day as oil re­sumed its painful re­treat and ex­tended a rout that has torn through en­ergy mar­kets, though stock ex­changes in Asia and Europe were mixed fol­low­ing a two-day sell-off. With de­mand vir­tu­ally non-ex­is­tent ow­ing to virus lock­downs, and pro­duc­tion still high de­spite stor­age at burst­ing point, crude mar­kets have been sent into freefall with WTI for May de­liv­ery div­ing to mi­nus $40 on Mon­day.

Fo­cus has turned to the June con­tract, which started yes­ter­day on fine form fol­low­ing news that top pro­duc­ers had held talks-but it plunged into the red in the af­ter­noon, hav­ing lost al­most half its value on Tues­day, when Brent col­lapsed by a fifth. WTI surged 20 per­cent be­fore chang­ing course to sit more than four per­cent down later, while Brent was off more than 11 per­cent af­ter ear­lier drop­ping 18 per­cent to $15.98 — its low­est since 1999.

The cri­sis in the oil mar­ket caused by coro­n­avirus was com­pounded by a price war between Rus­sia and Saudi Ara­bia, but while they drew a line un­der the row and joined other key pro­duc­ers in slash­ing out­put by 10 mil­lion bar­rels a day, that has not been enough.

Crude’s rout “merely re­flects the un­der­ly­ing theme that there is no de­mand for phys­i­cal oil, and there is nowhere to store it”, said Ax­iCorp’s Stephen Innes. “Dis­ap­point­ment fol­low­ing the new (oil cut) agree­ment con­tin­ues to res­onate, and re­spond­ing to that out­cry could be the one thing that turns the oil price around in the near term, ab­sent ev­i­dence of de­mand re­cov­ery.”

An­a­lysts said the morn­ing bounce was driven by news that mem­bers of OPEC, as well as some al­lies in the OPEC+ group­ing, held a tele­con­fer­ence Tues­day-but gloom soon re­turned. Eq­uity mar­kets, buoyed in re­cent weeks by tril­lions of dol­lars of stim­u­lus and signs of a slow­down in the rate of virus in­fec­tion and death in some coun­tries-and moves to slowly ease lock­down mea­sures in a num­ber of nations-are be­gin­ning to feel the spillover from the crude col­lapse.

In­vestors fear the rout could com­pound an ex­pected deep global eco­nomic down­turn. Innes added that the oil cri­sis “has neg­a­tive con­no­ta­tions for other ar­eas of the mar­ket, most no­tably banks, given their high ex­po­sure to US shale pro­duc­ers”.

‘Re­al­ity check’

Asian mar­kets have strug­gled this week, though there were some re­cov­er­ies yes­ter­day. Tokyo ended down 0.7 per­cent while Sin­ga­pore and Bangkok each shed 0.9 per­cent and Welling­ton re­treated more than one per­cent. Manila also fell and Syd­ney was marginally lower. How­ever, Hong Kong, Shang­hai, Mumbai, Seoul and Taipei were all up along with Jakarta.

In early trade, London, Paris and Frank­furt all ral­lied. There was lit­tle re­ac­tion to the US Se­nate ap­prov­ing a near-half-tril­lion-dol­lar coro­n­avirus relief pack­age, with fund­ing ear­marked for small busi­nesses, hos­pi­tals, and a ramp-up of test­ing na­tion­wide. Adding to the sense of un­ease on trad­ing floors is un­cer­tainty around earnings season, with many firms strug­gling to pro­vide fore­casts as they try to as­sess de­vel­op­ments in the pan­demic, which has shat­tered their bot­tom lines. “There’s no way you can pre­dict earnings right now,” Michael Cug­gino, at Pa­cific Heights As­set Man­age­ment, told Bloomberg TV.

“It’s vir­tu­ally im­pos­si­ble un­til we have more vis­i­bil­ity with re­spect to how the world comes out of the coro­n­avirus on the other side.” In Hong Kong, the de facto cen­tral bank stepped in to sell the lo­cal dol­lar for a sec­ond suc­ces­sive day to de­fend its peg with the US dol­lar.

The Hong Kong Mon­e­tary Author­ity sold HK$2.79 bil­lion ($360 mil­lion) of the unit, which has strength­ened in re­cent weeks ow­ing to near-zero US in­ter­est rates and higher bor­row­ing costs in the city as in­vestors look to buy into its stock mar­ket. The move came a day af­ter it sold HK$1.55 bil­lion, which marked the first in­ter­ven­tion to off­load the lo­cal unit since 2015. It last in­ter­vened to buy the cur­rency in March last year. Un­der the city’s Linked Ex­change Rate System, the HKMA is re­quired to buy the lo­cal cur­rency at HK$7.85 to US$1 to en­sure ex­change rate sta­bil­ity. The fi­nan­cial hub has main­tained a decades-old peg with the US dol­lar, which keeps Hong Kong at the mercy of Fed pol­i­cy­mak­ers.

Saudi-Rus­sia price war com­pounds



LOS AN­GE­LES: A ve­hi­cle pulls into a petrol sta­tion in Los An­ge­les, Cal­i­for­nia on Tues­day, a day af­ter oil prices dropped to be­low zero as the oil in­dus­try suf­fers steep falls in bench­mark crudes due to the on­go­ing global coro­n­avirus pan­demic.

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