Energy firms hit by oil dive, NKorea crisis fuels uncertainty

web_photo_ supertankers_21092016

Photo of the commercial oil tanker AbQaiq. Fujairah launches UAE's first supertanker dock.

 

HONG KONG - Asian energy firms sank on Thursday following a plunge in oil prices, while equity traders remained on edge after North Korea's latest missile test and warnings from the US it would use force to deal with the nuclear-armed state.

Crude fell about four percent on Wednesday on renewed concerns about a global supply glut that overshadowed data pointing to a drop in US stockpiles.

Investors are worried that an output cut agreed by Opec and Russia will not be enough to offset rising production from the US and other nations, including Libya and Nigeria.

"Gasoline demand has increased because of the US driving season and that’s a good sign for the market," Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore, told Bloomberg News.

But he added: "The rally is still extremely fragile and any signs which point to a higher supply environment into the second half could be a factor for oil prices to fall further."

READ: Oil prices slide over worries Middle East rift will undermine output cuts

Oil had surged about 10 percent since mid-June on bargain-buying, having dived about a fifth over the previous four weeks on supply worries.

While the commodity rose more than one percent on Thursday in Asia, Hong Kong-listed PetroChina and CNOOC were each down sharply. Santos and Rio Tinto gave up more than one percent in Sydney and Inpex was down a similar amount in Tokyo.

Broader equity markets swung back into negative territory on lingering worries about the North Korea crisis after it tested its first missile able to reach the United States.

At the United Nations, the US led a push for tougher sanctions on the hermit state, with ambassador Nikki Haley saying it was working on a draft resolution imposing sanctions on Kim Jong-Un's regime.

She called the launch a "sharp military escalation" that made "the world a more dangerous place", adding US President Donald Trump was ready to use military force if all diplomatic avenues are exhausted.

Trump heads to G20

The escalation comes days before Trump heads to Germany for his first G20 summit, which was already expected to be a test for the new president following his recent outbursts over global trade and NATO.

Tokyo ended 0.4 percent lower while Hong Kong slipped 0.1 percent.

Sydney lost 0.1 percent and Seoul was marginally lower, while Singapore and Taipei each gave up 0.4 percent.

But Shanghai ended up 0.2 percent. Wellington, Manila and Jakarta were also slightly higher.

In early European trade London and Paris each dipped 0.1 percent but Frankfurt rose 0.2 percent.

The dollar was little moved after minutes of the Federal Reserve's June meeting indicated interest rates would rise again this year as expected but provided no clarity on the bank's plan to wind down its multitrillion-dollar investment holdings.

"The ... minutes were perceived hawkish with US yields moving higher and the dollar-yen following suit," said Stephen Innes, senior trader at forex firm OANDA.

"But with no consensus on the balance sheet runoff timing, investors' dollar appetite dwindled a touch heading into Asia trade. However, the Fed's acknowledgement to elevated asset prices will probably keep the dollar bears at bay as this view provides more fodder to the rate hike narrative."

Traders are now awaiting the release of key US jobs data on Friday for a better handle on the state of the world's top economy.