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Oil prices drop after Saudi oil minister's comments

News Date: 24/2/2016 01:21:37
Oil prices took a hit on Wednesday after Saudi oil minister Ali Al-Naimi ruled out any production cut from major countries any time soon, dashing investors' hopes of any near solution to the persistent global oversupply, with demand contracting in some countries or having its growth slowed down sharply in most others, deepening the imbalances and widening losses for energy corporations.

Al-Naimi also said he expects more nations to join the production-freeze deal made last week between Saudi Arabia, Venezuela, Qatar and Russia, but he doesn't expect Iran to join, given that they would refuse to freeze their production volumes at sanctions-era levels without gaining their previous market share.

Brent crude futures gave up 45 cents, or 1.35% to trade at $32.82 a barrel, approaching again the dismal level of $30, while U.S. West Texas Intermediate (WTI) crude futures dropped 70 cents, or 2.25% to hover around $31.15 a barrel, wiping out their Monday's big gains.

Asian shares consequently fell, with Japan's Nikkei index shedding more than one percent to below the level of 16,000 again. Australian shares plummeted 2.10% to a one-week low, while China's Shanghai index lost 0.71%. South Korea's KOSPI index retreated a small 0.24%.

Traditional safe havens seized on the nervousness of the markets, with gold futures advancing six dollars, or 0.50% to trade at $1,228 an ounce, near a one-year high at $1,262. Silver futures similarly gained six cents, or 0.40% to hover around $15.30 an ounce. Industrial Copper on the other hand tumbled 1.19% to $2.076 a pound.

Dollar rose to a fresh seven-year peak against the British pound at 1.3978, up 0.31 on the day, as investors sell sterling on fears of a British exit from the European Union. Euro was largely flat versus the greenback at 1.1018, while the yen climbed 0.31% against its American rival to hover around 111.75.

Investors wait for an array of U.S. data later in the day, with New Home Sales for January expected at an annualized 5.22 million sales, down considerably from December's 5.44 million, which would be negative for the dollar and the housing sector.

Crude oil inventories on the other hand are forecast to have risen again by 2.0 million barrels last week, mimicking the previous reading's 2.1 million increase, while would pressure crude prices downwards to possibly below $30 again and near a multi-year low.

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