Asian shares wither as OPEC’s restraint hits oil

Reuters: Oil prices, oil-related shares and oil-linked currencies all tumbled in Asia on Friday, in the wake of OPEC’s decision to refrain from cutting output despite a huge oversupply.

U.S. markets were closed on Thursday for the Thanksgiving holiday, leaving the spotlight on the Organization of Petroleum Exporting Countries’ meeting in Vienna where Saudi Arabia blocked calls from poorer cartel members to cut production to stem a slide in global prices.
“OPEC is clearly signalling that it will no longer bear the burden of market adjustment alone and this decision puts the onus on other producers,” Barclays analysts said in a note.

Crude prices had been under pressure ahead of the meeting, but the sharp dive afterward – the largest since 2011 – showed the decision was not fully priced in.
Brent crude stood at $72.60 a barrel after settling at a four-year closing low on Thursday, poised to fall more than 15% for its steepest monthly decline since November 2008. U.S. crude was last down 6.5% at $68.93.

MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 0.7% , on track for a weekly gain of nearly 1% but a monthly loss of about 1.6%.
Australian shares dropped 1.6% as energy companies took a hammering, with Sundance Energy, Drillsearch, Santos Ltd falling 10-16%.

The Nikkei stock average bucked the regional downtrend and added 0.9%, on track for a slight weekly gain and a hefty monthly gain of over 6%.
Japanese data out earlier on Friday showed Japan’s industrial output unexpectedly rose 0.2% in October, marking a second straight month of gains, the jobless rate fell and the availability of jobs edged higher.

But Japan’s annual core consumer inflation slowed for a third straight month in October due to falling oil prices.

“Japan is amidst a perfect positive storm,” said Stefan Worrall, director of equities cash sales at Credit Suisse. “The oil price decline is stimulatory to world demand for Japanese exports, and offsets the impact of the weak yen on domestic energy costs.”

Two-year Japanese government bonds traded at a negative yield for the first time in history on Friday, as the Bank of Japan’s massive bond buying quest to vanquish deflation crushed short-term debt yields.

The dollar rose about 0.4% against the yen to 118.20 yen, while the euro drifted down about 0.1% to $1.2455.

But the greenback made dramatic moves against the currencies of oil-rich countries. The dollar rallied to 6.9570 Norwegian crowns, a high not seen in over five years, and was last at 6.9463.

The U.S. dollar spiked to a one-week high against its Canadian counterpart at C1.1355, before steadying at C$1.1335 in Asia.

Spot gold extended losses into a third session on expectations that plunging oil prices could sap inflationary pressure and curb the metal’s appeal as a hedge. Gold was down 0.5% at $1,184.80 an ounce, down about 1% for the week and ready to snap a three-week rally.

On Thursday, the euro fell against the dollar, after data showed German inflation sinking to its lowest since February 2010, reinforcing bets the European Central Bank will ease monetary policy more aggressively. The European Commission will tell France, Italy and Belgium on Friday their 2015 budgets risk breaking EU rules, but it will defer decisions on any action until early March, when France could face a multi-billion euro fine and Italy and Belgium be put on a disciplinary programme.

According to draft documents seen by Reuters, Spain, Portugal, Austria, and Malta are also at risk of busting budget limits.

http://www.ft.lk/2014/11/29/asian-shares-wither-as-opecs-restraint-hits-oil/

Reuters: Saudi Arabia blocked calls on Thursday from poorer members of the OPEC oil exporter group for production cuts to arrest a slide in global prices, sending benchmark crude plunging to a fresh four-year low.

Brent oil fell more than $ 6 to $ 71.25 a barrel after OPEC ministers meeting in Vienna left the group’s output ceiling unchanged despite huge global oversupply, marking a major shift away from its long-standing policy of defending prices.

This outcome set the stage for a battle for market share between OPEC and non-OPEC countries, as a boom in US shale oil production and weaker economic growth in China and Europe have already sent crude prices down by about a third since June.

“It was a great decision,” Saudi Oil Minister Ali al-Naimi said as he emerged smiling after around five hours of talks.
OPEC said in a statement that members had agreed to roll over the ceiling of 30 million barrels per day, at least 1 million above OPEC’s own estimates of demand for its oil next year.

“It is a new world for OPEC because they simply cannot manage the market anymore. It is now the market’s turn to dictate prices and they will certainly go lower,” said Dr. Gary Ross, chief executive of PIRA Energy Group.

The wealthy Gulf states have made clear they are ready to ride out the weak prices that have hurt the likes of Venezuela and Iran – OPEC members which face big budget pressures, but cannot afford to make cuts themselves. Venezuela and Algeria had calling for output cuts of as much as 2 million bpd.

Venezuelan Foreign Minister Rafael Ramirez said he accepted the decision as a collective one and hoped that lower prices would help drive some of the higher-cost US shale oil production out of the market.
“In the market, some producers are too expensive,” he said.

The OPEC statement made no mention of any need for members to stop overproducing, nor of any extraordinary meeting to reconsider the ceiling before a regular session next June.

The Organization of the Petroleum Exporting Countries accounts for a third of global oil output. Gulf producers could withstand for some time a battle over market share that would drive down prices further, thanks to their large foreign-currency reserves.

Members without such a cushion would find it much more difficult, as would a number of producers outside the group. Russia’s rouble, which has been sliding for much of this year, extended losses on Thursday to trade more than 2% lower than the previous close against the US dollar.

Russia is already suffering from Western sanctions over its actions in Ukraine and needs oil prices of $ 100 per barrel to balance its budget.

A price war might make some future US shale oil projects uncompetitive due to high production costs, easing competitive pressures on OPEC in the longer term.
“Why would Saudi cut production in the current environment? Why would they want to support Iran, Russia or US shale producers? So they must have decided: let the market establish the price. Once the market goes to a new equilibrium, prices will go higher,” PIRA Energy’s Ross said.

Kuwaiti Oil Minister Ali Saleh al-Omair said OPEC would have to accept any market price of oil, whether it were $ 60, $ 80 or $ 100 a barrel. Iraq’s oil minister, Adel Abdel Mehdi, said he saw a floor at $ 65-70 per barrel.

“We interpret this as Saudi Arabia selling the idea that oil prices in the short term need to go lower, with a floor set at $ 60 per barrel, in order to have more stability in years ahead at $ 80 plus,” said Olivier Jakob from Petromatrix consultancy.

“In other words, it should be in the interest of OPEC to live with lower prices for a little while in order to slow down development projects in the United States.”

http://www.ft.lk/2014/11/29/saudis-block-opec-output-cut-sending-oil-price-plunging/