Oil prices resumed a downward spiral in Asian trade today, following a massive sell off in equities, as traders grow concerned about the global economic outlook.
US benchmark West Texas Intermediate (WTI) for November delivery fell 90 cents to a two year low of US$ 0.88/bbl in late morning trade. Brent crude for November was down 43 cents to US$ 83.35, a level last seen four years ago.
The Gulf Times (GT) has described this fall in prices as a boon to the region, as it reduces costs for businesses and consumers and gives authorities room to lower interest rates at a time of slowing global growth.
Furthermore, companies in Asia could also see positive repercussions, as lower costs increase consumer purchasing power and slash costs. But recent weakness in local currency may blunt these gains.
In addition, GT reports that Asia could still suffer if crude prices decline still further. Crude’s weakness signals slowing demand from China and Europe, a development that risks hurting Asia’s big exporters.
Phillips Futures said in a market commentary that ‘WTI and Brent continued to open in red. With the current bearish conditions for crude oil, we expect this to continue’.
Meanwhile, Frederic Neumann, an economist with HSBC in Hong Kong has said that falling crude prices in Asia is a ‘double-edged sword’. “The worry is it reflects weakening global demand. But it offers a bit of a cushion for many economies in Asia”, he added.
Worsening the problem is a supply glut caused by strong US production of shale gas and a return of Libyan oil to the market after facilities that were closed following civil unrest return to operation. In addition to this, OPEC members are maintaining output levels, while slashing prices to gain market share.
According to the Singapore Business Standard investors are now awaiting the release of weekly US crude inventories later today, a key indicator of demand and supply in the nation.
Phillips Futures has indicated that prices for WTI contract are likely to remain supported at US$ 80 for the remainder of the day, but it is harder to account for Brent, which is more linked to the international market and could be more heavily affected by global trends.
Edited from various sources by Emma McAleavey.
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