HONG KONG – Oil extended gains in Asian trade today after a gathering of top producers fell apart without any agreement on a plan to lift output despite stockpiles shrinking and demand surging along with the global economic recovery.
The breakdown of talks between the Organisation of the Petroleum Exporting Countries (Opec) and other key crude nations raised the possibility of US$100 (RM415) a barrel – a level not seen since 2014 – and stoked fresh fears of inflation, which could force central banks to taper their monetary policy or hike interest rates earlier than thought.
Still, equity markets remained largely buoyant in early business, though the United States Independence Day break yesterday meant there were few buying catalysts. However, Hong Kong’s tech firms remained under pressure owing to fears that a new crackdown on the sector by Chinese authorities will make them unattractive to investors.
But, eyes are on oil after Brent broke above US$77 for the first time since 2018. West Texas Intermediate, too, rallied.
The Opec+ group yesterday cancelled a planned meeting that was supposed to overcome an impasse between the United Arab Emirates and other members on how to lift output. No new date has been set.
The countries have been slowly lifting production in recent months after turning the taps down last year in response to a collapse in prices caused by Covid-19 lockdowns.
With demand rocketing on the back of the global rebound – and the US holiday-driving season under way – officials had planned to hike output by 400,000 barrels a day from August to December, but the deadlock means no new supplies will be forthcoming.
While prices are spiralling higher, however, analysts said there are several possible scenarios. In one, there is no deal and no increase in production, sending oil prices shooting up, while another sees the grouping falling apart and countries fighting for market share by slashing prices.
Fed paying attention
“The failure of Opec+ to come to an agreement will only add uncertainty to the oil market,” said Warren Patterson of ING Group NV.
“Assuming we don’t get a quick resolution, the uncertainty over Opec+ output in the months ahead does suggest increased volatility.”
The brewing crisis has brought inflation back into play, with the rally in commodities playing a key role in the spike in prices around the world in recent months.
The risk of oil at US$100 a barrel “is so correlated with short-run inflation that it will make the market very, very edgy, and we know that the Federal Reserve is watching both the economic data and markets”, Alan Higgins of Coutts & Co told Bloomberg TV.
On the equity markets, most regional bourses were higher, with Tokyo, Sydney, Seoul, Singapore, Taipei, Manila and Jakarta all positive.
However, Hong Kong extended yesterday’s losses as traders remain on edge following Beijing’s ban of Chinese ride-hailing giant Didi Chuxing from app stores after a probe into its use of personal data, days after the firm’s massive New York initial public offering.
Mainland officials then widened their investigation to include two other US-traded Chinese tech companies, leading to concerns about a fresh drive against the industry.
Shanghai and Wellington were also lower.
Traders are now awaiting the release of minutes from the Fed’s June meeting, hoping for an idea about its plans for monetary policy as the recovery in the world’s top economy thunders along. – AFP, July 6, 2021
