Oil prices slump on Opec inaction

Opec member states last week failed to agree to put a ceiling on production, a move that many had hoped would help stabilise tumbling oil prices. If Opec keeps pumping oil, some shale oil producers could well fold as the oil price is below the break-
Opec member states last week failed to agree to put a ceiling on production, a move that many had hoped would help stabilise tumbling oil prices. If Opec keeps pumping oil, some shale oil producers could well fold as the oil price is below the break-even price for some.PHOTO: BLOOMBERG

Market watchers fear oversupply of crude will persist as oil cartel fails to address issue

Oil prices fell yesterday as investors reacted bearishly to the news that major Middle East producers could not agree on a much-needed production ceiling to address the oversupply of crude.

West Texas Intermediate (WTI) dropped 1.4 per cent to US$39.41 per barrel while benchmark Brent futures slipped to US$42.71 a barrel, down 0.67 per cent from last week's close and inching towards its lowest level since 2009.

The downbeat session followed last Friday's unsuccessful meeting in Vienna of the Organisation of Petroleum Exporting Countries (Opec). Member states failed to agree to put a ceiling on production, a move many had hoped would help stabilise tumbling oil prices.

Market watchers, such as OCBC Bank analyst Barnabas Gan, fear the supply glut will persist.

In a note yesterday, Mr Gan said a fully balanced oil market will come -at the earliest - only in 2017, with the oversupply gap narrowing in the second half of next year.

OCBC has downgraded its forecast for WTI from US$60 to US$55 a barrel by the end of next year, while the Brent forecast was cut from US$70 to US$60 for the same period, Mr Gan said, noting the higher Opec production and the resilience of US shale producers.

While continued low oil prices benefit some economies, the Russian rouble weakened to its lowest level since August.

Shale oil producers will also feel the heat soon. If Opec keeps pumping oil, some of these producers could well fold as the oil price is below their break-even price.

While the oil price outlook continues to dim, the impact on offshore and oil-related stocks here was not too severe yesterday as regional markets gained on the strong United States job data released at the weekend.

Sembcorp Marine closed flat at $1.88, still at its lowest level in six years. The downbeat sentiment around oil production may throw up further headwinds for the rig builder, which has pared around 8.7 per cent over the past week amid a string of negative news.

Last Thursday, SembMarine said it had reached a "standstill" agreement with North Atlantic Drilling to defer the delivery of a rig until next June. This came amid a spat with Marco Polo Marine over a rig order cancellation and a warning that the group may report a net loss for the fourth quarter.

Smaller counters in the offshore and marine support segment had a mixed day. Both Ezra Holdings and Ezion Holdings dropped, with Ezra closing 0.1 cent or 0.93 per cent down at 10.6 cents, while Ezion lost 1.5 cents or 2.48 per cent to 59 cents. Swissco Holdings was down 0.5 cent or 2.13 per cent to 23 cents. But Vallianz Holdings eked out a 0.1 cent or 2.08 per cent gain to 4.9 cents.

A version of this article appeared in the print edition of The Straits Times on December 08, 2015, with the headline 'Oil prices slump on Opec inaction'. Print Edition | Subscribe