Energy firms led a sell-off in most Asian equity markets on Tuesday a day after supply fears sent oil prices plunging, while confidence remains fragile owing to ongoing fears of a global trade war.
After hitting three-and-a-half-year highs at the start of the month, crude has dropped almost 10 per cent as it is hit by a perfect storm of issues that have fuelled fears of a glut.
Worries about the impact on demand caused by a possible trade war between the US and China took their toll last week, as did news that Libya was exporting again after recent oil field closures. That all came just weeks after major producers Saudi Arabia, Russia and OPEC agreed to lift a 2016 ceiling that had supported prices.
The latest spark for selling came Monday on reports the US may tap its Strategic Petroleum Reserve to lower prices and speculation Riyadh was considering increasing output for some Asian countries.
Also Monday US Treasury secretary Steven Mnuchin indicated the Trump administration could allow some exceptions to a ban on purchases of Iranian oil.
“It very much seems like a continued reaction to potential supply increases,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, told Bloomberg News.
“The combination of the supply-side effect and the potential for less demand as a result of trade woes that we’re seeing are prompting people to take some of the long bets off oil right now.”
Both main contracts tumbled more than four per cent Monday, though they saw some minor increases in Asia.
IMF trade warning
The losses filtered through to energy firms with CNOOC and PetroChina down more than three per cent in Hong Kong, while Woodside Petroleum was more than two per cent off in Sydney and Tokyo-listed Inpex lost more than one per cent.
Broader stock markets were also mostly down with Hong Kong 1.1 per cent lower, Shanghai one percent off and Sydney 0.4 per cent lower. There were also losses for Seoul, Wellington, Taipei and Singapore.
However, Tokyo — which was closed for a holiday Monday — rose 0.6 pe rcent by the break thanks to a weaker yen.
Ongoing fears about a China-US trade war continue to nag investors, with both sides filing counter-complaints at the World Trade Organization after recently imposing and threatening further tariffs on billions of dollars worth of goods.
And on Monday the International Monetary Fund warned about the effects of a stand-off between the world’s two economic superpowers.
“The risk that current trade tensions escalate further — with adverse effects on confidence, asset prices, and investment — is the greatest near-term threat to global growth,” IMF chief economist Maurice Obstfeld said.
Attention is now on the start of the corporate earnings season, with hopes strong reports will deflect from the trade war, while Federal Reserve chief Jerome Powell is to give two days of congressional testimony from Tuesday.