|24 October, 2018

Wednesday outlook: Oil prices drop 5 percent overnight

Oil prices dropped close to 5 percent on Tuesday, regained some ground on Wednesday. Asian shares traded lower on Wednesday following a retreat on Wall Street overnight. More commentary on Middle East markets, currencies and precious metals

Image used for illustrative purpose only. Pumpjacks are seen at an oil field in Huaian, Jiangsu province, China November 11, 2017. Picture taken November 11, 2017.

Image used for illustrative purpose only. Pumpjacks are seen at an oil field in Huaian, Jiangsu province, China November 11, 2017. Picture taken November 11, 2017.

REUTERS/Stringer
  • Oil prices fell sharply overnight, recovered some losses on Wednesday
  • Asian shares drop tracking a retreat on Wall Street
  • Saudi Arabia’s index drops 1.3 percent
  • Dollar flattens, gold adds gains

Oil prices

Oil prices dropped sharply on Tuesday on demand uncertainties and as a sell-off in equities weighed on sentiment. Prices fell close to 5 percent, reaching levels last seen two months ago.

Early on Wednesday, prices regained some of the incurred losses overnight.

Front-month Brent crude oil futures were at $76.72 a barrel at 0320 GMT on Wednesday, 28 cents, or 0.4 percent, above Tuesday’s close.

U.S. West Texas Intermediate (WTI) crude futures were at $66.66 a barrel, up 23 cents, or 0.4 percent, from their last settlement.

“The severity of the drop is pretty striking, but in today’s trading world we have these kind of days a little more often. Now we have to wait and see if this continues to spiral out of control,” Gene McGillian, vice president of market research for Tradition Energy in Stamford, Connecticut, told Reuters.

“Concerns about what’s going on in the stock markets and the worries about economic growth has spilled over into the oil markets,” McGillian said, adding that investors will be watching closely to see if the increase in Saudi Arabia’s output materializes quickly.

Global markets

Asian shares traded lower early on Wednesday, tracking a retreat on Wall Street overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2 percent, extending the decline of more than 2 percent in the previous session.

Wall Street’s three major indexes slumped early on Tuesday but ended well off the day’s lows as investors snapped up beaten-down shares late in the session.

“Broader market sentiment remains fragile, but as last night’s resilience by Wall Street shows, sentiment has not broken down completely,” Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, told Reuters.

“We may see more bouts of ‘mini panic’ until the U.S. midterm elections, but the bottom line is that the U.S. economy is in good shape and that should prevent sentiment from breaking down.”

Middle East markets

Saudi Arabia’s index dropped 1.3 percent on Tuesday. Last week, foreign investors sold $1.07 billion in Saudi stocks, the biggest sell-offs since the market opened to direct foreign buying in mid-2015.

Dubai’s index added 0.2 percent as Amanat Holdings added 2.7 percent and Gulf Navigation Holding climbed 3.7 percent.

The Abu Dhabi index inched up 0.3 percent with Arkan Building Materials jumping 12.9 percent and Emirates Driving Co rising 14.9 percent. First Abu Dhabi Bank (FAB) gained 0.55 percent after it announced on Monday a 16 percent rise in third quarter net profit for 2018.

Egypt's blue-chip index lost 0.5 percent with Abu Qir Fertilizers and Chemical Industries falling 8.7 percent and Alexandria Mineral sliding 11.7 percent.

Qatar’s index dropped 0.1 percent Kuwait’s index rose 0.5 percent, Bahrain’s index edged down 0.1 percent and Oman’s index edged up 0.1 percent.

Currencies

The dollar index against a basket of six major currencies was flat at 96.979 after posting a modest loss the previous day.

The Japanese yen was steady at 112.43 in early Asian trade, having gained 0.32 percent on Tuesday.

“We have maintained that when sentiment really turns nasty that the yen will remain the market’s safe haven of choice,” Rabobank analysts said in a research note, according to a Reuters report.

Precious metals

Gold prices added gains on Wednesday as equities fell.

Spot gold was up 0.1 percent at $1,231.27 an ounce at 0102 GMT. On Tuesday, it touched its highest since July 17 at $1,239.68.

U.S. gold futures were down 0.2 percent at $1,234.20 an ounce.

(Reporting by Gerard Aoun; Editing by Shane Mcginley)

(Gerard.aoun@refinitiv.com)


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