Most Asian stocks rose, following U.S. shares higher, as Japanese shares climbed and a turnaround in oil boosted energy companies.
About three shares climbed for each that fell on the MSCI Asia Pacific Index, which traded little changed at 119.63 as of 9:05 a.m. in Tokyo. Energy and material shares led gains, while consumer companies dropped. Volatility over the past 30 days on the regional benchmark index remains near the highest level in four years amid tumbling oil prices and concern over the slowdown in China’s economy. U.S. crude erased a slump of more than 4 percent Wednesday to close above $32 a barrel.
“You need to see some settling in the oil price and maybe we’re getting there on that one,” said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd., which oversees about $120 billion. “That could be ticked off as a positive but we still need to see more evidence that central banks are doing what they can to stabilize the situation. The volatility reflects the range of views out there and the uncertainty that surrounds the economic outlook.”
Officials from the world’s biggest economies meet in Shanghai from Friday to discuss the recent turmoil in Chinese markets and ways to bolster a safety net for the global financial system, according to people familiar with the agenda for the talks. U.S. Treasury Secretary Jacob J. Lew downplayed expectations for “crisis response” in a Bloomberg TV interview, saying the world was currently in a “non-crisis environment.” AMP’s Oliver agreed.
“It would be nice to see some collective statement from the major central banks that they’re aware of the problems and that they can’t operate in isolation in this environment,” Oliver said. “I don’t hold out a lot of hope. We’re not in enough of a crisis yet to see a crisis response.”
Japan’s Topix index rose 1 percent, with construction companies leading gains. Japan is considering an extra budget worth about 5 trillion yen ($45 billion), TV Asahi reported, citing several unidentified ruling party officials.
South Korea’s Kospi index advanced 0.6 percent and Australia’s S&P/ASX 200 Index lost 0.2 percent. New Zealand’s S&P/NZX 50 Index slid 0.1 percent.
Futures on Hong Kong’s Hang Seng Index fell 1.4 percent in most recent trading, while contracts on the Hang Seng China Enterprises Index retreated 1.5 percent. Futures on the FTSE China A50 Index dropped 0.2 percent.
E-mini contracts on the Standard & Poor’s 500 Index gained 0.4 percent. The underlying gauge rose 0.4 percent in New York, reversing a drop of as much as 1.6 percent as oil and gas producers climbed. The Stoxx Europe 600 Index fell 2.3 percent.
Chesapeake Energy Corp. surged 23 percent in New York after saying it will pay off the remainder of a half-billion dollar debt that’s coming due in three weeks with proceeds from asset sales that were twice as large as the company expected.
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
Nigeria Takes Bold Step to Energize Oil Sector: Plans to Revoke Dormant Exploration Leases
The Nigerian Upstream Petroleum and Regulatory Commission (NUPRC) has announced that the Federal Government is considering revoking inactive oil exploration leases granted to companies unable to conduct exploration activities.
Gbenga Komolafe, CEO of NUPRC, conveyed that only companies demonstrating robust technical and financial capabilities would retain their leases under the guidelines of the Petroleum Industry Act (PIA).
“Based on PIA, the commission is focused on delivering value for the nation, so only firms that are technically and financially viable will keep their leases,” affirmed Komolafe in a statement to Reuters.
He outlined that the commission plans to review existing leases, and the allocation of new leases will be contingent upon specific terms and conditions.
Current data from NUPRC reveals that over 60% of prospecting licenses, comprising 53 exploration leases issued since 2003, have expired. Of these, 33 licenses, including four entangled in contract disputes, have not been renewed.
While automatic revocation has not been exercised, the regulator signals a departure from allowing companies to indefinitely retain leases without meaningful exploration activities.
The enactment of the PIA in 2021 empowers the regulator to assess the technical and financial capabilities of companies holding oil exploration leases.
The Nigerian oil and gas sector has faced challenges, witnessing dwindling investments as major players exit onshore and shallow water assets due to security concerns, infrastructure sabotage, and legal disputes in the Niger Delta.
The proposed move aims to incentivize active exploration, addressing the sector’s stagnation and fostering renewed investor confidence.
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