Energy firms sank in Asian trade yesterday as oil prices extended the previous day’s sharp losses due to profit-taking after a recent rally and fresh worries about a global oversupply.
Even a fall in the dollar, which usually makes crude cheaper, could not stop the slide in the commodity after Iraq flagged a pick-up in output and rebels in key producer Nigeria announced a ceasefire.
Investors were also treading water as they await 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 rise.
After a seven-day rally that put oil into a bull market — a 20% jump from recent lows — the commodity has taken a hiding since the start of this week.
In afternoon trade on Tuesday West Texas Intermediate fell one % to $46.96 and Brent lost 0.7% to $48.84.
On Monday WTI shed 2.9% and Brent 3.4% 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 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.
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 2%, while in Hong Kong CNOOC shed more than 1% and PetroChina 0.6%.
Sydney-listed Woodside Petroleum eased 0.4%. On regional stock markets, Tokyo’s Nikkei finished 0.6% lower, while Hong Kong was flat.
Shanghai added 0.2% and Sydney closed 0.7% higher while Seoul tacked on 0.4%.
The dollar fell below ¥100 again despite weekend comments from Fed vice chairman Stanley Fischer, which fanned speculation of an interest rate rise before the end of the year.
They were followed by similarly hawkish noises from two regional bank presidents.
The greenback fell to ¥99.94 at one point in Tokyo. It later edged back to ¥100.07 from ¥100.32 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 Yellen’s speech at the annual global central bankers’ symposium at Jackson Hole in Wyoming Friday.
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, even following Stanley Fischer’s comments over the weekend. 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.”
In Tokyo, the Nikkei 225 down 0.6% at 16,497.36 points; Shanghai — Composite up 0.2% at 3,089.71 points and Hong Kong — Hang Seng up 1.02 points at 22,998.93 points at the close yesterday.