Nikkei plunges more than 500 points on oil price collapse
TOKYO —
Tokyo stocks tumbled more than 2% Wednesday, plunging more than 500 points from Tuesday’s close as U.S. crude prices hit new 12-year lows after the International Energy Agency warned that the oil market could “drown in oversupply”.
The U.S. benchmark West Texas Intermediate fell below $28 a barrel—days after Brent did the same—after the IEA warning as supplies outstrip demand.
Energy-linked firms took a hit, with explorer Inpex and JX Holdings being hammered.
The benchmark Nikkei 225 index at the Tokyo Stock Exchange shed 367.04 points to 16,677.17 by the break, extending its decline to 20% from its June high and putting it in bear territory. The broader Topix index of all first-section shares lost 2.04%, or 28.30 points, to 1,362.11.
After the break, the Nikkei lost another 133 points in early afternoon trading.
“At the root of the selling we’ve seen this year has been the imbalance of oil supply and demand, so until the oil price moves calm down, the stock market will struggle,” Chihiro Ohta, general manager of investment information at SMBC Nikko Securities, told Bloomberg News before the start of trading Wednesday.
“We’ll continue to see a tug-of-war between nervous sentiment and technical indicators showing that falls have gone too far.”
The International Monetary Fund’s decision to downgrade its global growth forecast for 2016 also weighed on investor sentiment, pushing up the yen against the dollar.
The dollar dropped to 117.26 yen from 117.59 yen Tuesday in New York. A strong yen hurts the profitability of Japan’s exporters.
In share trading, Inpex sank 4.11% to 956.1 yen and JX Holdings was down 3.52% at 418.7 yen.
(c) 2016 AFP
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12 Comments
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2
JeffLee
Yeah, cheap affordable oil will spell the death of Japan. What this economy needs is really, really, really expensive imported energy.
1
Reckless
Japan should use this opportunity to buy all the oil it can and store it for a rainy day,,,
2
MarkX
I just can't understand how the falling price of oil is having such a huge effect on the world economy. Shouldn't this make it cheaper to do almost everything? Drive, produce, make plastics etc. Sure there are sectors that would be affected, but I almost feel there is some form of collusion going on, but I don't understand who it is benefiting.
5
trouble
What's good for consumers is bad for business.
0
M3M3M3
The stock market often has very little to do with the health of the real economy since it also prices in events that happened in the past. So for example: A fall in oil prices will be good for consumers and the economy going forward since prices will fall and people will be able to buy more. But its bad news for some companies who paid high energy/materials/transport costs to produce the inventories sitting in their warehouses which will now have to be discounted to compete with goods being produced today. The fall in the market reflects these profits being wiped out.
1
ThonTaddeo
Let's play "spot the sentence that was inserted by an LDP/Abe/Kuroda propaganda editor"!
1
gogogo
Seriously?
0
warispeace
To understand what is going on, besides usual market panic, a couple of factors must be considered to explain why a drop in the price can create worry in the market.
One is that supply is greater than demand not just because of excess production but because of other economic factors creating uncertainty about the future, especially over-accumulation of other goods (China has build enough new cities, for example), so there's less productive activity and thus less demand.
Another is that fossil fuels, especially easily accessible oil, have long been an easy wealth generator--think about how much it would cost to pay someone to physically provide the same amount of calorie power as a barrel of oil and why oil companies have been some of the most profitable for many decades. But now because the extraction costs have gone up, the price is sinking and climate change means a lot of potential wealth must be left in the ground, there is a huge present and future loss of wealth.
0
wontond
I think slumping oil prices are more of a symptom of a slow or slowing global economy, rather than a cause. If your currency is heavily dependent on oil, like it is where I live, then it will have a huge impact on the price of imported goods.
0
Laguna
A certain amount is due to depressed demand in resource-exporting countries such as Australia and Brazil, but mostly it is speculation by the sophisticated and panic by the sheep. Let's just hope it does not turn into a self-fulfilling prophecy.
-1
kibousha
The theory is that the drop in oil price is caused by a low demand of it which is caused by factories not getting orders to make stuffs. The chain is long and complicated, but at the end of the line it comes down to consumers not buying stuffs which means profit will be down. Nothing scares the leeches in Wall$treet more than the phrase "profit is down".
Don't expect "prices" to be cheaper, because producers are going to let supplies run out to avoid lost, which in theory will push "prices" up again.
0
some14some
In this country of Rising Sun, Nikkei has risen only twice this year ! Free fall...reporters are struggling to explain such a steep drop today.
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