Asian shares and oil fall as Saudi Arabia rules out production cuts, STI down 1.5%

People stand in front of an electronic board displaying share prices at a securities exchange house in Shanghai.
People stand in front of an electronic board displaying share prices at a securities exchange house in Shanghai. PHOTO: BLOOMBERG

TOKYO (REUTERS) - Asian shares retreated on Wednesday (Feb 24) as a nascent recovery in the oil market lost momentum after Saudi Oil Minister Ali Al-Naimi effectively ruled out production cuts by major producers anytime soon.

MSCI's broadest index of Asia-Pacific shares outside Japan extended earlier losses to fall 1.1 per cent as of 10:46 am Singapore time, slipping further from Monday's six-week high.

Japan's Nikkei shed 0.7 per cent on the drop in oil prices and as the stronger yen weighed on exporters. Chinese shares opened higher but surrendered the gains, with the CSI 300 index down 0.1 per cent and the Shanghai Composite little changed.

Singapore's Straits Times Index was 1.46 per cent to 2,632.96 as of 11:32 am, weighed down by news the economy slowed to a 2 per cent growth in 2015 with more downside risks for 2016.

The US S&P 500 Index fell 1.25 per cent on Tuesday to 1,921.27, having failed to rise above its peak hit on Feb 1, with energy and material sectors being a major drag as oil prices quickly gave up Monday's hefty gains.

Mr Naimi told oil executives on Tuesday that markets should not view the agreement by four major oil producers to freeze at the January level as a prelude to production cuts.

While Mr Naimi said he was confident more nations would join the pact, Iran was seen as unlikely to agree to the output cap, which does not allow Iran to regain the market share it lost during sanctions.

US crude futures settled down 4.6 per cent at US$31.87 a barrel and Brent settled 4.1 per cent lower at US$33.27 a barrel.

"I suspect few people were expecting a deal to cut production so his comments are hardly a surprise. Yet, the latest development seems to suggest that for oil producers to get more united they will have to feel more pain," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

The toll from low oil prices is also spreading to banks that have exposure to the energy sector, as roughly a third of US shale oil producers at high risk of slipping into bankruptcy this year, according to a study by Deloitte.

JP Morgan, the largest US bank by assets, said it will increase provisions for expected losses on energy loans by US$500 million, or more than 60 per cent of its existing reserves.

JPMorgan shares fell 4.2 per cent on the announcement.

Investors instead favoured safer assets such as US Treasuries, with the 10-year notes yield falling to a two-week low of 1.714 per cent.

Gold also erased all of its losses made earlier this week to trade at US$1,230.90 per ounce, coming near its one-year high of US$1,262.90 touched about two weeks ago.

In the currency market, traditional safe-haven currencies such as the yen and the Swiss franc outperformed.

The yen firmed to 111.77 to the US dollar on Tuesday, edging near its 15-month high of 110.985 hit on Feb 11. It last stood at 111.95.

The Swiss franc gained broadly, hitting a one-month high on the euro at 1.09165 franc per euro on Tuesday.

The franc got a lift also as the head of its central bank warned it could not "endlessly" take further steps to ease monetary conditions.

The euro in contrast was hit by a key index on German business climate showing sentiment among German manufacturers plunged by its largest amount since the bankruptcy of Lehman Brothers in 2008.

Against the US dollar, the euro fell to three-week low of US$1.0990 on Tuesday and last stood at US$1.1023.

The British pound remained on the defensive, hitting a seven-year low below US$1.40 in early Asian trade on Wednesday on worries Britons would vote to leave the European Union in a June referendum.