Beating for KLSE and ringgithttp://www.thestar.com.my/News/Nation/2014/12/02/Beating-for-KLSE-and-ringgit/
December 2, 2014 MYT 12:00:00 AM
The benchmark FBM KLCI, which measures the key 30 stocks of Bursa Malaysia.
US light crude oil – better known as West Texas Intermediate (WTI).
The plunge follows an Opec decision not to cut production despite a huge oversupply in global markets.
If it goes below that level, it could plunge all the way to US$32.40 per barrel – the lowest recorded price in recent years when it hit US$32.40 per barrel on Dec 19, 2008, before rising to US$114.83 on May 2, 2011.
Taking the cue from the plunging oil prices and a chilling warning issued by Petronas on declining revenues, oil and gas stocks on Bursa Malaysia also faced a rout which affected market sentiment as a whole.
US, Saudia Arabia, and Shale Oil
Analysts said the selling could be over-done and expected a relief rebound when oil prices settle.
Oil prices fell to their lowest in five years yesterday due to the production war between OPEC and the American oil boom from shale oil producers. In recent months, the United States has become a major producer of shale oil and gas – fuel that’s extracted from rock fragments – threatening the position of Saudi Arabia as the dominant oil-producing country. In response to the threat, OPEC, which is influenced by Saudi Arabia, has vowed to continue production of oil in a market where supply has outstripped demand. This has led to a free fall in global oil prices that have declined by more than 40% since July this year. Late last night after the opening of the US counters, oil price fell to below US$65 a barrel. Saudi Arabia hopes to break the back of shale oil and gas producers by making their operations not financially viable. It had been reported earlier that at prices below RM80 a barrel, shale oil producers would go bust. However, Bloomberg reported that only about 4% of US shale oil output needs US$80 a barrel or more to be economically viable.
Among the top losers of the Bursa yesterday were SapuraKencana Petroleum Bhd, Bumi Armada, Dialog Group Bhd, UMW Oil and Gas Bhd and Petronas-related counters. The paper wealth wiped out due to the rout on the oil and gas stocks was close to RM8bil.
Low-cost carrier AirAsia Bhd bucked the trend as it stands to benefit from weaker oil prices. AirAsia rose 21 sen to RM2.79.
Investors were also worried about the impact Petronas’ reduced payout would have on the Government that counts on the national oil corporation as a key source of funding for its expenditure.
“However, today’s selling was overdone and I believe there could be a relief rebound,” he said, based on improving US economic growth and ample liquidity from China and Japan.
Eng said according to reports, Bank of America believed Malaysia’s budget deficit could balloon to 3.8% from a planned 3% while Citi thought the 3% deficit could still be maintained.