By Eric Yep
Oil futures traded near a four-and-a-half year low in Asia
Friday after prices went south after Organization of the Petroleum
Exporting Countries decided not to cut oil production quota to help
boost oil prices.
Nymex West Texas Intermediate crude has fallen below the $70
level and was trading at its lowest since May 2010, and Brent
crude, the global oil benchmark, was at its lowest since August 24,
2010.
Oil prices have lost around 35% of their value since June this
year and OPEC's decision to maintain its current production ceiling
of 30 million barrels a day does little to remove the glut that is
keeping oil prices low.
OPEC's decision also sets the tone for oil prices in the next
few months as markets will have to adjust demand and supply on
their own, instead of depending on oil producers like OPEC to make
the adjustments.
The last three oil price shocks that hit the world economy over
a span of 16 years saw sharp drops in global oil demand, but this
time oil demand, although slower, is still growing. "The question
now is how the supply adjustment process will unfold, and under
what timeframe," analyst Leo P. Mariani at RBC Capital Markets said
in a report.
While oil producers will take a hit as low oil prices squeeze
revenues, oil consumers stand to benefit.
Low oil prices are a big positive for Asia in particular. With
the U.S. becoming more self-sufficient in oil production and
Europe's oil demand falling, Asia is the largest remaining importer
of oil in the world.
China, the world's second-largest consumer of oil, is likely to
enjoy at least another year or so of low commodity prices, which
will give Beijing more leeway to loosen monetary policy, according
to Julian Evans-Pritchard, a Singapore-based China economist at
Capital Economics.
China is expected to become the largest net importer of oil in
2014, according to the U.S. Energy Information Administration.
Other major oil importers in Asia like India and Indonesia will
also get a major boost as their current account deficit narrows,
and the subsidy bills footed by local governments shrinks.
For Japan too oil prices are a positive, but some of the impact
has been blunted by a weaker currency.
"Whether businesses and consumers benefit from the drop in oil
prices are not clear. Many Japanese oil buyers use the yen, which
has weakened sharply against the dollar recently," Ryoma Furumi,
deputy manager of the commodities team at Aozora Bank said.
Meanwhile, oil producers in Asia Pacific are bracing for tougher
times ahead.
Malaysia's fiscal position is at risk as the government relies
heavily on the petroleum sector for revenue. About 30% of its
annual funds comes from the oil and gas sector and Malaysia's
state-run oil and gas company, Petroliam Nasional Bhd or Petronas,
is a major contributor to the government budget.
A decline of $10 per barrel in average crude oil prices will
reduce Malaysia's government revenue by about 4.0 billion ringgit
($1.2 billion), according to RHB Research Institute.
The Australian government also relies on rising energy exports
and massive investments in oil-and-gas projects to cushion the blow
of a sharp decline in minerals spending and prices. Its booming
liquefied natural gas sector sells vast quantities of the fuel at
oil-linked prices.
The slide in oil has sparked heavy selling of energy stocks,
battering the resource-heavy Australian share market Friday,
although some other industrial segments like transport services and
airlines may benefit from oil prices.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in January traded at $68.86 a barrel at 0216 GMT, down
$4.83 in the Globex electronic session. January Brent crude on
London's ICE Futures exchange fell $0.14 to $72.44 a barrel.
Nymex reformulated gasoline blendstock for December--the
benchmark gasoline contract--fell 1229 points to $1.9122 a gallon,
while December diesel traded at $2.2905, 1060 points lower.
ICE gasoil for December changed hands at $652.00 a metric ton,
up $8.75 from Thursday's settlement.
Write to Eric Yep at eric.yep@wsj.com;
Rhiannon Hoyle, Mari Iwata and Jason Ng contributed to this
story