Oil prices in the international oil market rose to near six-month highs on Tuesday as the United States tightened sanctions on Iran, thereby sending shares of energy companies higher and boosting currencies of several major crude producers.
For instance, Brent crude oil futures rose 0.7 per cent to $74.57 per barrel by 0630 GMT, their highest since November, after Washington said it was ending all sanctions waivers for countries buying Iranian oil. U.S. light crude rose 0.8 per cent to $66.10.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent, as gains in oil and gas producers offset losses in airlines and other transport sectors facing higher fuel costs. Japan’s Nikkei closed up 0.2 per cent.
European markets looked set to track Asia’s rise, with London’s FTSE futures up 0.4 per cent and German DAX futures higher by 0.2 per cent.
It would be recalled that the U.S. had on Monday demanded all buyers of Iranian oil stop purchases by May 1 or face sanctions, a move to choke off Tehran’s oil revenues.
The White House said it was working with top oil exporters, Saudi Arabia and the United Arab Emirates to ensure the market was “adequately supplied,” but traders had already been worried about tight supplies.
Singapore-based Chief Economist and Head of Research for the Asia Pacific at ING, Robert Carnell, said: “Oil prices are not so high that it crushes manufacturing by putting energy price inputs up, but it is producing a nice boost to oil-producing nations.’’
Carnell sees Brent crude’s sweetspot at between $65 and $75 per barrel, noting that“above this, you may see some negative impact.’’
In China, major benchmarks flitted in and out of negative territory amid concerns that Beijing will slow the pace of further policy easing after unexpectedly strong first-quarter economic data last week.
China’s blue-chip stocks have surged over 30 per cent so far this year on expectations of more stimulus and hope Beijing and Washington will reach an agreement to end their nine-month-long trade dispute.
Reflecting on the oil prices’ trend, Chief Investment Strategist at LGT Bank Asia in Hong Kong Stefan Hofer, said: “We’ve had a fantastic run in Chinese equities year-to-date, some profit taking is completely normal. I don’t think China is changing its policy that quickly.’’
On Wall Street, stocks hovered near break-even on Monday as the benchmark S&P 500 index was about one per cent away from its record high hit in September, while the S&P energy index jumped on higher oil prices.
Despite recent gains in oil prices, many investors still expect inflation to be well-contained in major economies including the U.S., allowing the Federal Reserve to keep a dovish stance.
The world’s largest economy reported worse-than-expected fall in home sales on Monday, as rising demand continued to be frustrated by a lack of properties.
Hong Kong-based Head of Equity Research, Asia ex-Japan, at Nomura, Jim McCafferty,
Said that “the data is pointing to the Fed being as accommodative as possible, which, for Asian investors, is good news.’’
In the currency market, the dollar index, which measures the greenback against six major currencies, eased 0.2 per cent overnight and last traded steady at 97.384.
The index hit a two-week high of 97.485 on Thursday, before the start of Good Friday and the Easter weekend.
Against the Japanese yen, the dollar was 0.04 per cent weaker at ¥111.88, while the euro was slightly softer by 0.06 per cent against the greenback at 1.1248.