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Shares jump to 3-week high, lifted by energy counters

SINGAPORE — Shares in Singapore rose yesterday, with the Straits Times Index (STI) hitting its highest in three weeks, led by energy-related counters after the Organisation of the Petroleum Exporting Countries (Opec) agreed to cut crude oil output for the first time in eight years.

SINGAPORE — Shares in Singapore rose yesterday, with the Straits Times Index (STI) hitting its highest in three weeks, led by energy-related counters after the Organisation of the Petroleum Exporting Countries (Opec) agreed to cut crude oil output for the first time in eight years.

Despite gains, analysts said the optimism may be short-lived given the cloudy prospects for the global economy. They also noted that Opec’s preliminary agreement on Wednesday lacks details, and the agreed cut is too small to curb the current supply glut, limiting the upside potential of oil prices. Global oil prices were steady yesterday after rising more than 5 per cent overnight on news that Opec will cut output to a range of 32.5 million to 33 million barrels per day. Opec estimates its current production at 33.2 million bpd.

The STI gained 1 per cent yesterday to close at 2,885.71 points, recovering into positive territory for the year, albeit a marginal 0.1 per cent.

Energy counters were among the top gainers of the day, with rig-building giant Keppel Corp jumping 3.8 per cent to S$5.42, while rival Sembcorp Marine surged 5.6 per cent to S$1.33.

Movements in the Singapore market were in line with the broader Asian market, which reacted positively to OPEC’s surprise agreement to trim production for the first time since 2008.

Japan’s Nikkei-225 jumped 1.4 per cent, China’s Shanghai Composite rose 0.4 per cent while Hong Kong’s Hang Seng Index ended 0.5 per cent higher.

“Opec’s willingness to cut production confirms the change in direction by the Opec cartel to want higher prices and a more comprehensive oil deal in its November meeting,” said Mr Barnabas Gan, economist at OCBC Bank.

Oil futures rallied overnight with US benchmark crude trading near US$47 (S$64) per barrel. That helped energy stocks in the region as well as currencies of major net oil exporters such as Malaysia. The ringgit rose 0.6 per cent yesterday to 3.0220 against the Singapore dollar — its strongest in three weeks.

For a more sustainable rally in oil prices, demand has to pick up as well, noted Mr Nicholas Teo, trading strategist at KGI Fraser Securities.

Meanwhile, Bank of Singapore chief economist Richard Jerram opined that Opec is not as influential as it used to be, now that US shale oil production “has increased the flexibility of supply”.

A global oil glut has weighed on crude prices for more than two years, spurring deflation that has hurt corporate earnings.

In Singapore, Keppel Corp and Sembcorp Marine — two of the world’s largest offshore oil rig builders — saw their shares tumbling after earnings suffered from the fall in oil prices.

Former stock-market darling, oilfield services provider Swiber Holdings, has been put under judicial management after failing to pay creditors.

The worst may not be over for the sector. Mr Jonathan Chan, investment analyst at Phillip Futures, said it remains to be seen whether Wednesday’s deal will translate into an actual production cut as there has also been “widespread incidents of quota cheating in the past within Opec”.

“Given that oil prices have remained low for quite some time already, any significant increase in price would incentivise oil producers, both Opec or non-Opec, to increase production to recover more revenue and oil inventory owners to clear out some of their massive crude oil stockpiles,” he added.

Agreeing that significant upside in prices looks unlikely, Mr Jerram said US$50 a barrel is a “reasonable target” for the next six to 12 months.

“Oil prices around US$50-60 are probably optimal for global growth. Too low and it hurts commodity exporters and causes financial stress for too many related firms. Too high and it acts like a tax on consumers of developed economies,” he said.

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