Nov 05, 2014

    STI tumbles with oil prices

    SHARPLY falling oil prices dragged the local stock market down yesterday to kill off a four-day rally.

    The Straits Times Index had been climbing since last Wednesday, but dropped 9.27 points or 0.3 per cent yesterday to end at 3,281.57.

    Lower oil prices usually mean lower profits for oil and gas companies and associated firms like rigbuilders, so local investors had plenty of reasons to bail out.

    The picture across Asia was also fairly gloomy except in Japan, where the weakened yen gave markets a shot in the arm.

    Tokyo's Nikkei, which reopened yesterday after a public holiday on Monday, surged 2.7 per cent following the Bank of Japan's surprise announcement of more monetary stimulus on Friday. However, Hong Kong slid 0.3 per cent, Seoul sank 0.9 per cent and Shanghai was flat.

    Oil prices plunged yesterday after Saudi Arabia, the world's biggest oil exporter, cut the prices it charges customers in the United States in a bid to retain market share there.

    Prices for the benchmark London-traded Brent crude oil fell by more than 2 per cent to US$82 (S$106) a barrel, representing a slump of around 29 per cent since June.

    "Declines are seen in the energy sector, triggered by Saudi Arabia's plan to cut shipping cost to the US, while the supply is high there," Jakarta-based BNI Securities said in a note.

    The drop in oil prices hit several energy-related stocks here.

    Rigbuilder Sembcorp Marine lost nine cents to $3.65, although larger rival Keppel Corp was less affected, dipping only one cent to $9.53.

    Offshore firm Emas Offshore dropped 4.5 cents to 77 cents while its parent company, Ezra Holdings, slipped 1.5 cents to 80.5 cents.

    The Singapore Exchange (SGX) said in an SGX My Gateway report to investors yesterday that the shares of rigbuilders and oilfield-services firms have fallen less than those of energy explorers and producers, whose values have dropped in tandem with oil prices.

    "Some companies can establish long-term contracts with guaranteed minimum pricing to alleviate uncertainty associated with commodity prices," the report said.

    "The other side of that trade is that such contracts generally restrict the opportunity for substantial extra profitability if the price of oil rises sharply."

    Bucking the general trend, ship-repair and ship-building firm Cosco Corp eked out a 1.5-cent gain to 61.5 cents.

    OCBC Investment Research maintained its "sell" call on the counter yesterday, saying that Cosco has three offshore projects that "have already been cancelled or are at risk of cancellation. Looking ahead, margins may be pressured even further as the group executes lower-priced contracts".

    The most active counter was Catalist-listed electronics company WE Holdings. It gained 0.2 cents to 1.2 cents, with 99.9 million shares changing hands.