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Oil prices dive but Trump-Kim hopes boost Asian equity markets

May 28 2018 11:46

Oil prices extended losses in Asia on Monday after Saudi Arabia and Russia signalled they could raise output, but indications that Donald Trump's summit with Kim Jong Un could be back on supported equity markets.

Both main contracts tanked on Friday after Saudi oil minister Khaled al-Faleh said his country could open the taps wider in the second half of the year to insure against any supply shocks.

His Russian counterpart Alexander Novak said they had talked about a two-year-old deal capping production, adding that OPEC and other members of the pact would discuss raising limits next month.

The comments come as supply worries increase, with major producer Venezuela hit by economic uncertainty, Iran facing painful export sanctions and demand seen picking up.

On Friday Brent sank 3% and WTI fell 4%, and the two contracts fell more than 1% further in Asia.

The losses come after crude earlier this month hit levels not seen since November 2014, and led to sharp selling in Asian energy firms.

Sydney-listed Woodside Petroleum ended 3.5% down and Inpex dived 2.6% in Tokyo.

CNOOC lost 0.9% in Hong Kong, but Sinopec rebounded in the afternoon and PetroChina surged more than 6%, boosted by news that Chinese authorities had given firms freedom to raise and lower gas prices based on supply and demand. PetroChina is the country's biggest gas supplier.

Broader markets were mostly up on renewed hopes for the Trump-Kim summit after the US president appeared on Friday to do a U-turn 24 hours after cancelling the meeting.

Euro strengthens

Markets fell in Asia on Friday after Trump said he had pulled out of the June 12 gathering, citing "open hostility" from Pyongyang. However, a flurry of diplomacy - led by South Korea, whose President Moon Jae-in met Kim on Saturday - has put it back on track.

And on Sunday Trump tweeted that a US team "has arrived in North Korea to make arrangements for the summit".

He added: "I truly believe North Korea has brilliant potential and will be a great economic and financial Nation one day. Kim Jong Un agrees with me on this. It will happen!"

Tokyo finished 0.1% higher, Hong Kong added 0.7% and Singapore put on 0.4%, while Seoul rallied 0.7%.

Wellington, Jakarta and Taipei were also up but Sydney slipped 0.5% and Shanghai closed 0.2% off.

On currency markets, the euro edged up despite political uncertainty in Italy, with investors welcoming news that President Sergio Mattarella had vetoed the nomination of fierce eurosceptic Paolo Savona as economy minister.

While the decision sparked the resignation of prime minister-elect Giuseppe Conte and could lead to fresh elections, it was seen as a positive move for the euro.

However, Ray Attrill, head of foreign-exchange strategy at National Australia Bank in Sydney, said: "We may now be in for an extended period of heightened uncertainty ahead of fresh elections - assuming that's where we're headed.

"For now it's more relief that Italy will not - for now at least - have an avowed eurosceptic finance minister."

The single currency's gains are also being limited by the prospect of upheaval in Spain, where Prime Minister Mariano Rajoy could face a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.

In early European trade Paris rose 0.5% and Frankfurt was up 0.6%, while Milan rose 1.8% as traders welcomed Mattarella's decision.

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commodities  |  markets  |  oil
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