LONDON: Brent oil prices plummeted this week to five-year lows underneath $60 per barrel as markets were rocked by shrinking Chinese manufacturing output, economic turmoil in Russia and ample crude supplies.
Oil has now halved in value since June, due also to the stronger dollar and weak demand as the global economy struggles.
Investors closely watched the situation in crude producer Russia, as the ruble crashed to a series of record lows, despite a drastic interest rate hike.
“The combined effects of slumping oil, the Russian Central Bank’s interest rate hike and falling output from China have all come together to deliver a triple blow to the markets,” said ETX Capital analyst Daniel Sugarman.
“Lower output from China means less of a need for oil, while as a primary oil producer Russia really feels the pain of lower oil prices, compounded by the sanctions imposed earlier this year.”
Many commodities fell in line with oil, but sentiment was subdued yesterday with many traders away for an extended Christmas and New Year holiday.
OIL: Brent prices plunged late Tuesday to $58.50 — a low last seen on May 26, 2009 — and New York crude hit a similar low at $53.60 after Opec signalled it has no plans to intervene to shore up plunging prices. Brent had already breached the psychological $60 barrier earlier Tuesday as weak Chinese manufacturing data stoked global demand concerns.
The market however rebounded on Friday, in line with gains on global stock markets, as investors snapped up bargain crude.
“Until the issue of low global demand and oversupply is resolved, we will continue to see this type of market volatility as investors test the waters,” Phillip Futures analyst Daniel Ang said.
“There are two camps in the market at the moment. Some who believe prices can fall further, and others who are betting that it should be above $60.”
The Organization of the Petroleum Exporting Countries (Opec), the oil producers group that supplies about a third of global oil, has so far declined to cut output to curb the price plunge.
Top Opec producer Saudi Arabia said Thursday that competitive pressures prevent it from reducing output, and the kingdom can weather falling prices.
“It is difficult, or even impossible, for Saudi Arabia or Opec to undertake any measure that would lead to a reduction in (their) share of the market and an increase in that of others” who do not belong to the cartel, said Oil Minister Ali Al Naimi.
The latest selloffs came after Opec opted last month to maintain its collective output ceiling at 30 million barrels per day, where it has stood for three years.
“At Opec’s meeting in November, we took two decisions,” added Kuwaiti oil minister Ali Al Omair on Tuesday.
“The first was to keep the production ceiling unchanged and the second to hold the next meeting in June. So far, nothing has changed and there are no calls for holding an emergency meeting.”
By yesterday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in February sank to $60.69 per barrel compared with $62.11 for the January contract one week earlier.
On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for January dived to $56.23 per barrel from $58.15 a week earlier.
US stocks were little changed yesterday after the market’s best two-day run in more than three years, with shares of Nike weighing on the Dow while energy shares led a modest advance on the benchmark S&P 500.
The S&P 500 index had climbed 4.5 percent over the previous two sessions, spurred by the US Federal Reserve’s commitment to take a “patient” approach toward raising interest rates, while signaling it was on track to boost rates in 2015. That provided clarity and relief to investors over the policy outlook, analysts said.
The benchmark stock index has risen more than 3 percent this week, putting the S&P on track for its best weekly performance in two months. It has erased nearly all the losses from the prior week, which were spurred by a sharp drop in oil prices.
Shares of Nike shed 2.8 percent, a day after the company flagged slowing growth in western Europe.
Gold and other precious metals fell on the back of the strong dollar after the US Federal Reserve signalled an interest rate increase was not imminent. The gold price was “hindered by the Fed statement confirming small steps towards rising rates which has kept the dollar strong and made the metal more expensive to buy,” said Accendo Markets analysts.
By late yesterday on the London Bullion Market, the price of gold fell to $1,195.50 an ounce from $1,217 a week earlier. Silver slid to $15.86 an ounce from $17.07.
On the London Platinum and Palladium Market, platinum stood at $1,197 an ounce, from $1,231 the previous week.
Palladium decreased to $795 an ounce from $818.
China’s manufacturing activity worsened in December with HSBC’s purchasing managers’ index (PMI) hitting a seven-month low at 49.5 percent, below the break-even point dividing expansion and contraction.
That signalled fresh weakness in the world’s second-largest economy and major consumer of oil and base metals, according to analysts.
“Since the beginning of the week, the majority of prices on the London Metal Exchange (LME) have found themselves under pressure,” said Commerzbank analysts.
Agencies
