The Star Online > Business
Published: Thursday December 18, 2008 MYT 7:57:00 AM
Oil tumbles below US$40 for first time since 2004
PHOENIX: Oil prices tumbled below $40 for the first time since the summer of 2004 Wednesday despite an announcement from OPEC of a record production cut of 2.2 million barrels a day.
Markets had already priced in a vastly reduced flow of oil and traders focused instead on troubling economic data that points to a long and severe recession.
Light, sweet crude for January delivery tumbled 8 percent, or $3.54, to settle at $40.06 on the New York Mercantile Exchange.
Benchmark crude prices fell as low as $39.88, a price last seen in July 2004.
"There's just so much oil in inventory out there right now,'' said Michael Lynch, president of Strategic Energy & Economic Research.
"Nobody wants to buy this stuff.''
Crude prices have fallen so low, producers have leased supertankers to store the oil at sea, hoping that oil will rebound.
U.S. gasoline inventories continued to rise, the government reported, providing further evidence of a major pullback by American motorists.
Demand for gasoline over the four weeks ended Dec. 12 was 2.7 percent lower than a year earlier.
OPEC had already announced cuts totaling 2 million barrels earlier this year, also with little effect.
The unprecedented production cuts and the market reaction show just how fast energy demand has fallen during the worst economic downturn in at least a generation.
"You've got a commodity that people are buying less of because they can't afford to buy more,'' said Phil Flynn, an analyst at Alaron Trading Corp.
"People are fearful. They have a lack of confidence in the economy. They're closing their factories.''
Grim economic news radiates out of the U.S., Europe and Asia almost daily as consumers and industries pull back on spending.
The Cooper Tire and Rubber Co. said Wednesday it will cut 1,300 jobs and close a plant in Georgia.
Newell Rubbermaid Inc. is reducing its salaried work force by as much as 10 percent.
The Atlanta-based company slashed its fourth-quarter and full-year profit guidance Wednesday.
In Detroit, General Motors Corp. put the brakes on construction of an engine factory trying to hold on to the cash that it has left.
Meanwhile, the dollar suffered its biggest one-day decline against the euro after the Federal Reserve cut a key lending rate target to historic lows.
That would typically lead more investors into the crude market because oil is bought and sold in dollars and you can get more bang for the buck.
But investors in this harsh economic climate are holding onto their wallets like never before, betting there's not enough global demand to support higher crude prices, said Gene McGillian, an analyst at Tradition Energy.
"Oil prices should be a lot stronger,'' McGillian said.
The last time oil prices dipped below $40 a barrel was July 21, 2004.
Prices settled that day at $40.09, according to Peter Beutel, an oil analyst at Cameron Hanover.
Many analysts believe oil prices will continue falling next year with agencies ranging from the U.S. Department of Energy to the International Energy Agency forecasting weak demand.
IHS Global Insight Chief Economist Nariman Behravesh was among the industry experts forecasting lower prices for oil.
"Oil prices will (easily) fall below $40 per barrel in the next year, and could tumble all the way to $30,'' Behravesh said in a research note.
"With the economic outlook deteriorating by the day, futures markets for commodities have not priced in the full extent of the 'demand destruction' taking place.''
Doubts also remain about the willingness of some OPEC members to adhere to price-boosting production quotas.
"OPEC has lacked credibility for a long time on discipline,'' said Gerard Rigby, energy analyst at Fuel First Consulting in Sydney.
"OPEC is going to have to show they are committed to the cut, that it's not just talk.''
U.S. crude inventories rose slightly last week despite expectations for a drop, while gasoline reserves increased as demand stayed below year-ago levels, according to government data released Wednesday.
Analysts had expected a drop of 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
In London, February Brent crude rose 97 cents to settle at $45.53 a barrel on the ICE Futures exchange.
In other Nymex trading, gasoline futures fell 3.45 cents to settle at $1.0055 a gallon.
Heating oil fell 1.77 cents to $1.4425 a gallon while natural gas for January delivery fell 15.2 cents to settle at $5.619 per 1,000 cubic feet.
Thursday, December 18, 2008
Thursday, November 6, 2008
Remote Chance Malaysia Will Enter Into Recession
The Star Online > Business
Thursday November 6, 2008
Remote chance Malaysia will enter recession
KUALA LUMPUR: Like many other nations, Malaysia is dependent on exports to the US for economic growth but the risk of the country going into a recession is quite remote, said Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias.
“Malaysia’s direct dependency on the US as a major export destination has steadily declined in recent years,” he said.
However, he noted that Malaysia’s exposure to the US had actually increased, taking into account “indirect exports”, which was why “growth in China is paramount.”
“Whatever we export to China is being repackaged and sent to the US. If you consider all these factors, our exposure to the US has increased,” Nor Zahidi said at the CEO breakfast talk on Current Global Economic Challenges yesterday.
Including indirect exports, Malaysia’s exports to the US constituted 32% of its total exports in 2006, up from 25% in 2000, he added.
Nor Zahidi forecast Malaysia’s gross domestic product growth to moderate to 3.5% next year “based on the US economy contracting by a maximum 1.5% in 2009”.
“If the US economy contracts by more than 2% next year, the forecast would have to be revised,” he said.
The economist said Malaysia’s economic growth next year would be constrained by weakness in private investments as risk aversion heightened among investors.
Both exports and private investment were expected to bear the brunt of the global slowdown, he said.
Meanwhile, MARC chief executive officer Mohd Razlan Mohamed said slower economic activities would have a bearing on corporate bond issuance in 2009.
He estimated corporate bond issuance in 2009 to be in the range of RM25bil to RM30bil.
“The number of foreign entities that sought to issue in the ringgit bond market to capitalise on the lower financing cost, particularly between the second half of last year and the first half of this year, has diminished in the wake of significant spikes in corporate yields.
“The 3-year AAA yield that averaged 4.08% in mid-2007 has moved up to 4.70% by the third quarter of this year,” Razlan noted.
He said the gap between what investors were willing to pay and what they were seeking had created an incompatible situation for bond issuance.
Thursday November 6, 2008
Remote chance Malaysia will enter recession
KUALA LUMPUR: Like many other nations, Malaysia is dependent on exports to the US for economic growth but the risk of the country going into a recession is quite remote, said Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias.
“Malaysia’s direct dependency on the US as a major export destination has steadily declined in recent years,” he said.
However, he noted that Malaysia’s exposure to the US had actually increased, taking into account “indirect exports”, which was why “growth in China is paramount.”
“Whatever we export to China is being repackaged and sent to the US. If you consider all these factors, our exposure to the US has increased,” Nor Zahidi said at the CEO breakfast talk on Current Global Economic Challenges yesterday.
Including indirect exports, Malaysia’s exports to the US constituted 32% of its total exports in 2006, up from 25% in 2000, he added.
Nor Zahidi forecast Malaysia’s gross domestic product growth to moderate to 3.5% next year “based on the US economy contracting by a maximum 1.5% in 2009”.
“If the US economy contracts by more than 2% next year, the forecast would have to be revised,” he said.
The economist said Malaysia’s economic growth next year would be constrained by weakness in private investments as risk aversion heightened among investors.
Both exports and private investment were expected to bear the brunt of the global slowdown, he said.
Meanwhile, MARC chief executive officer Mohd Razlan Mohamed said slower economic activities would have a bearing on corporate bond issuance in 2009.
He estimated corporate bond issuance in 2009 to be in the range of RM25bil to RM30bil.
“The number of foreign entities that sought to issue in the ringgit bond market to capitalise on the lower financing cost, particularly between the second half of last year and the first half of this year, has diminished in the wake of significant spikes in corporate yields.
“The 3-year AAA yield that averaged 4.08% in mid-2007 has moved up to 4.70% by the third quarter of this year,” Razlan noted.
He said the gap between what investors were willing to pay and what they were seeking had created an incompatible situation for bond issuance.
Tuesday, November 4, 2008
UBS AG Sees Malaysia Achieving Zero Growth Next Year
Tuesday November 4, 2008
UBS sees zero growth for Malaysia
KUALA LUMPUR: UBS Ltd, a subsidiary of Zurich-based UBS AG, sees Malaysia achieving zero growth next year in view of weakening demand from G7 countries.
Managing director for global economics Paul Donovan said exports growth would be negative for Malaysia.
“Asian governments, including Malaysia, are expected to continue applying fiscal and monetary stimuli to offset slower growth,” he told a media briefing yesterday.
He expects Malaysia to cut the overnight policy rate by 50 basis points to 3% as early as this month in line with monetary measures being taken by governments globally.
Donovan said unemployment in the country would rise gradually to 4% by 2010 in view of the slowdown in exports.
“Although Asia will recover faster than Europe, there’ll not be any above-trend growth until early 2011 while export-driven economies will have to wait for the rest of the world to recover before exports grow again,” he said.
He added that global growth would be slow for the next 18 to 24 months.
“This sort of weak growth normally follows a banking crisis because banks are reluctant to lend due to weak balance sheets while corporate debt, especially in Europe, have risen by 40% in the last four years,” Donovan said.
He said weaker borrowing and consumer spending would continue until the debt-to-income ratio went back to 2002 levels.
“It’ll take time to return to that level and will need a change in policy with lots of interest rate cuts and governments may need to encourage banks to pass on the lower rates to consumers in the form of lower commercial lending rates.”
Import orders by the US would be turning negative in the next few months while car sales there had slowed down, Donovan said, adding: “There will be no way to limit the impact in Asia while China will not be able to replace the lost car sales in the US.”
Among the Organisation for Economic Cooperation and Development (OECD) countries, he said, there would be negative growth next year except for Japan, which would see a slight growth. “Overall, the global economy is experiencing its weakest growth in 25 years,” he said.
The poor performance of most of Asian currencies was due to investors reassessing the fundamentals of growth in the region because the idea that Asia and Europe would decouple from the US economy did not hold true anymore, he said.
“The ban on short selling in the US and Britain had unintended consequences on these currencies because hedge funds had to sell some of their investments to cover short positions in Asia as well as Latin America.”
On a more positive note, Donovan said Malaysia’s inflation rate was set to come down rapidly next year to below 1% due to the lower energy and food prices.
“Semi-skilled labour costs, which are the main driver of food prices, are likely to be relatively stagnant, which means food prices will be lower,” Donovan said.
Statistics show that 80% of food price inflation in OECD countries was driven by semi-skilled labour costs, while in Asia, it was 40% to 60%.
He said crude oil price for next year would average US$60 to US$65 a barrel from US$120 this year.
UBS sees zero growth for Malaysia
KUALA LUMPUR: UBS Ltd, a subsidiary of Zurich-based UBS AG, sees Malaysia achieving zero growth next year in view of weakening demand from G7 countries.
Managing director for global economics Paul Donovan said exports growth would be negative for Malaysia.
“Asian governments, including Malaysia, are expected to continue applying fiscal and monetary stimuli to offset slower growth,” he told a media briefing yesterday.
He expects Malaysia to cut the overnight policy rate by 50 basis points to 3% as early as this month in line with monetary measures being taken by governments globally.
Donovan said unemployment in the country would rise gradually to 4% by 2010 in view of the slowdown in exports.
“Although Asia will recover faster than Europe, there’ll not be any above-trend growth until early 2011 while export-driven economies will have to wait for the rest of the world to recover before exports grow again,” he said.
He added that global growth would be slow for the next 18 to 24 months.
“This sort of weak growth normally follows a banking crisis because banks are reluctant to lend due to weak balance sheets while corporate debt, especially in Europe, have risen by 40% in the last four years,” Donovan said.
He said weaker borrowing and consumer spending would continue until the debt-to-income ratio went back to 2002 levels.
“It’ll take time to return to that level and will need a change in policy with lots of interest rate cuts and governments may need to encourage banks to pass on the lower rates to consumers in the form of lower commercial lending rates.”
Import orders by the US would be turning negative in the next few months while car sales there had slowed down, Donovan said, adding: “There will be no way to limit the impact in Asia while China will not be able to replace the lost car sales in the US.”
Among the Organisation for Economic Cooperation and Development (OECD) countries, he said, there would be negative growth next year except for Japan, which would see a slight growth. “Overall, the global economy is experiencing its weakest growth in 25 years,” he said.
The poor performance of most of Asian currencies was due to investors reassessing the fundamentals of growth in the region because the idea that Asia and Europe would decouple from the US economy did not hold true anymore, he said.
“The ban on short selling in the US and Britain had unintended consequences on these currencies because hedge funds had to sell some of their investments to cover short positions in Asia as well as Latin America.”
On a more positive note, Donovan said Malaysia’s inflation rate was set to come down rapidly next year to below 1% due to the lower energy and food prices.
“Semi-skilled labour costs, which are the main driver of food prices, are likely to be relatively stagnant, which means food prices will be lower,” Donovan said.
Statistics show that 80% of food price inflation in OECD countries was driven by semi-skilled labour costs, while in Asia, it was 40% to 60%.
He said crude oil price for next year would average US$60 to US$65 a barrel from US$120 this year.
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