Crude oil drops to 3-year low on fears of widening crisis

PETALING JAYA: Crude oil price dropped to a three-year low to under US$48 per barrel during Asian trading hours yesterday on fears worldwide demand for fuel will be crimped by worsening global economic outlook and falling equity prices.

At yesterday’s low, the New York light sweet crude benchmark was down by almost US$100 from its peak of US$147.27 hit on July 11. The sharp decline raised the prospect of further output cuts by the Organisation of Oil Producing Countries (OPEC) at its next meeting scheduled for Dec 17.

But while consumers welcomed the cheaper fuel prices - Malaysia yesterday cut domestic pump prices for the sixth time since June - the oil slump in the past months was a reflection how the the global economy had turned from bad to worse.

In the US, an influential private organisation of economists said on Monday that the world’s biggest economy had been in recession since December last year. The National Bureau of Economic Research (NBER) expects the downturn to last until the middle of next year.

The Dow Jones Industrial average plunged 7.7% on Monday to close at 8,149 points. The overnight drop prompted investors in Asia to to further reduce their equities holding yesterday.

The KL Composite Index fell to low of 838 points after the opening bell, but bargain hunters swooped in to alleviate the index’s early losses to just 2.68 points at the close of 845.75 points. Trading turnover on Bursa Malaysia moderated to RM595mil from RM740mil on Monday.

Other Asian markets were badly bruised.

In Japan, the Nikkei 225 index tumbled 6.4% to 7,863.69 as the rising yen reduced the appeal of Japanese exporters. In Hong Kong, the Hang Seng index fell 5%, pulled down by property stocks after the city’s biggest bank HSBC raised mortgage loan rates. All major Asian bourses were down yesterday, except for the stock market in Shenzhen, China.

Meanwhile, a number of brokerages yesterday issued their wrap-up reports on the recently concluded third-quarter earnings season.

“The poor corporate earnings reflect the slowing economy, which could get worse in the coming quarters,’’ RHB Research Institute said.

The sentiment was also echoed in Hwang-DBS Vickers’ assessment on local corporate results in the July to September period.

OSK Research, meanwhile, sees a possible “year-end window dressing activities” this month, as fund managers may try to prop up select counters before closing the book on what is shaping up to be a bad year for investors. It still recommended investors to take advantage from any potential rebound to sell their stock holdings.

The ringgit yesterday weakened to a new two-year low against the US dollar at 3.6385.

By Izwan Idris-The Star

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