Oil slump sinks Asian shares amid weaker US dollar, STI down 0.7%

The silhouette of pumpjacks is seen on the site of an oil well outside Williston, North Dakota, US. US crude fell for a third day on August 11.
The silhouette of pumpjacks is seen on the site of an oil well outside Williston, North Dakota, US. US crude fell for a third day on August 11. PHOTO: BLOOMBERG

WELLINGTON (BLOOMBERG) - Oil's selloff deepened in Asian trading on Thursday (Aug 11), weighing on energy stocks amid resurgent concern over global supplies of the commodity.

US crude fell for a third day, trading below US$42 a barrel after a surprise gain in American stockpiles inflamed concerns about oversupply. While markets in Japan were closed for a holiday, equities in Australia and South Korea tracked Wednesday's pullback in the S&P 500 Index.

As the Bloomberg Dollar Spot Index fell for a third day, the kiwi jumped more than 1 per cent after the country's central bank cut rates to a fresh record low but signaled a more gradual easing path than some investors had anticipated.

Crude's decline back toward a bear market comes as policy makers from Tokyo to Frankfurt engage in unprecedented stimulus to ignite growth and inflation. New Zealand followed Australia in reducing rates to a fresh all-time low, and wagers on the Federal Reserve hiking borrowing costs this year remain below 50 per cent as traders bet uneven expansion elsewhere will see the US central bank exercise caution. South Korea, which cut rates to a record low in June, is expected to hold fire in a policy review on Thursday.

"Oil is increasingly pulling back towards the US$40 a barrel level again and many in the markets are concerned that the shorts may even be looking for prices to drop down toward the US$35 level," Angus Nicholson, a market analyst in Melbourne at IG Ltd, said in an e-mail to clients. "Equities look set to follow the US markets lower in the Asian session."

The MSCI Asia Pacific excluding Japan Index fell 0.2 per cent as of 9:26 am Tokyo time, halting a five-day advance. Australia's S&P/ASX 200 Index dropped 0.6 per cent, amid a drop of similar magnitude in the country's energy shares, while the Kospi index in Seoul lost 0.2 per cent.

Stocks in Singapore, which lowered its economic growth forceast for this year before markets opened on Thursday, were trading lower with the Straits Times Index down 0.7 per cent as of 10:15 am.

New Zealand's S&P/NZX 50 Index, the first major equity index to start trading, fell 0.1 per cent in a second day of losses. The Reserve Bank of New Zealand reduced its key rate by 25 basis points, or 0.25 percentage point, to 2 per cent early Thursday.

Futures on the S&P 500 Index dropped 0.1 per cent to 2,171.25, after the underlying benchmark declined 0.3 per cent on Wednesday, retreating from close to a record high. Energy producers posted the steepest declines, slipping 1.4 per cent amid crude's slide.

Contracts on Hong Kong's Hang Seng and Hang Seng China Enterprises gauges slipped 0.1 per cent in most recent trading, while FTSE China A50 Index futures were down 0.2 per cent.

The Kiwi was up 1.4 per cent to 73.08 US. cents, after reaching as high as 73.41 US cents, its strongest level since May 2015.

Australia's dollar also gained, rising 0.2 per cent to extend last session's 0.4 per cent jump. The South Korean won snapped a five-day climb, falling 0.2 per cent after reaching a more than one-year high on Wednesday.

Bloomberg's dollar index, a gauge of the greenback versus 10 major peers, lost 0.1 per cent after declining 0.8 percent over the previous two sessions.

West Texas Intermediate crude lost another 0.9 per cent to US$41.35 a barrel, after sinking 2.5 per cent on Wednesday, the most since Aug 1.

Crude supplies in the US increased by 1.06 million barrels last week, according to Energy Information Administration data. Analysts surveyed by Bloomberg had forecast a drop of 1.5 million barrels.

After descending into a bear market last week, WTI is currently down just over 19 per cent from a high reached in June. Weakness in global crude markets may persist as demand slows seasonally and fuel inventories remain abundant, the Organization of Petroleum Exporting Countries said in its monthly report Wednesday.