Asian markets extend rout as oil sinks below $28

HONG KONG (3rd UPDATE) – Oil prices plunged below $28 a barrel early Monday, January 18, hitting energy firms and extending losses across Asian markets after sanctions were lifted against Iran, allowing the key producer to resume crude exports.

While the decision to free Tehran of the strict embargoes had been well telegraphed, the news hammered Middle East equities Sunday, January 17, which were already under pressure as the price of oil sits at 12-year lows.

The United States and the European Union lifted the sanctions at the weekend after the UN’s atomic watchdog confirmed Iran had complied with its obligations under the deal to curb its nuclear program.

The country is now free to start shipping crude, adding to a supply glut, which – along with weak demand and a slowing global economy – has slashed prices by about three quarters since mid-2014.

On Monday a barrel of Brent oil fell 4.4% to $27.67 at one point before bouncing back above $28. The last time Brent closed below $28 was in November 2003 and Nomura Holdings is tipping further falls towards $25.

In afternoon trade Brent was down 2.2% at $28.30 and US benchmark West Texas Intermediate was 1.9% off at $28.86.

“There is ongoing negative pressure on oil prices from oversupply,” Ric Spooner, a chief analyst at CMC Markets in Sydney, told Bloomberg News.

“Iran is not new, but we’ve arrived now at the point where sanctions have been removed and it’s going to be a key focus for the markets over coming weeks. The question is how much supply can come online in the short term.”

Singapore’s DBS Bank said in a research note that adjusted for inflation oil was now cheaper than at any time since 1998, at the height of the Asian financial crisis.

The news was met with horror in Gulf trading, with stock markets in Saudi Arabia, Qatar, Dubai, Abu Dhabi and Kuwait all battered.

Energy firms tumble

Most Asian equities followed suit, with Tokyo closing down 1.1% near one-year lows, Hong Kong 1% lower in the afternoon, Sydney shedding 0.7% by the end and Wellington 1.1% lower.

There were also sharp losses in Manila and Jakarta.

But Shanghai again swung in and out of positive territory, having plunged almost nine percent last week. The benchmark index ended 0.4% lower.

Energy firms were among the big losers, with CNOOC in Hong Kong down 4% and PetroChina shedding 0.5%.

Sydney-listed mining giant BHP Billiton was 2.9% lower and Woodside Petroleum retreated 2.6%. Inpex slipped 1.5% in Tokyo.

The Chinese market was given some support by the People’s Bank of China’s decision to increase the yuan’s rate against the dollar. Its recent weakness has been a key contributor to a rout in global markets that has characterised the start of 2016.

In a bid to prevent cash outflows which have also hit the yuan, the PBoC said Monday it would require foreign banks to hold reserves of the currency. Overseas lenders have until now been set a reserve requirement ratio – the amount of depositor funds they must keep aside – of zero.

But from next week they will be subject to similar rules as domestic lenders, which are as high as 17.5%.

Markets are now nervously awaiting the release Tuesday, January 19, of Chinese economic growth data for 2015, with analysts surveyed by AFP forecasting the slowest rate in 25 years.

Worries about the state of China’s economy have hit markets from Asia to the Americas over the past two weeks, with Beijing’s ability to handle the crisis being brought into question.

Key figures around 0730 GMT

Tokyo – Nikkei 225: DOWN 1.1 percent at 16,955.57 (close)

Shanghai – Composite: UP 0.4 percent at 2,913.84 (close)

Hong Kong – Hang Seng: DOWN 1.0 percent at 19,325.36

Euro/dollar: DOWN at $1.0890 from $1.0916 Friday

Dollar/yen: UP at 117.18 yen from 116.96 yen

New York – Dow: DOWN 2.4 percent at 15,988.08 (close)

London – FTSE 100: DOWN 1.9 percent at 5,804.10 (close)

– Rappler.com