Asian stocks shaky as oil slump, 'hard' Brexit fears dim mood

SINGAPORE - Asian stock markets were on the back foot on Tuesday as risk appetite evaporated overnight after the year's strong start, with equities retreating, oil markets roiled by a supply surge and the pound sliding on renewed concerns about a "hard" Brexit.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat in early trade.

Japan's Nikkei dropped 0.2 percent as investors took refuge in the safe-haven yen.

Oil prices on Monday posted their biggest one-day loss in six weeks amid fears that record Iraqi crude exports in December and rising US output would undermine OPEC's efforts to curb a global supply glut.

The Organization of the Petroleum Exporting Countries agreed in November to cut output for the first time since the global financial crisis more than eight years ago.

Iraq's oil ministry emphasized that the high levels would not affect the country's decision to cut January production to comply with the OPEC agreement.

But sources told Reuters that Iraq's State Oil Marketing Company had given three buyers in Asia and Europe full supply allocations for February.

"It's unusual to have these agreements last for very long because inevitably someone cheats," said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners.

"It's certainly conceivable that the (OPEC) agreement falls apart and you get more production than anticipated in addition to already thinking that it should be lower because of dollar strength."

Last week, US energy companies added oil rigs for a 10th week in a row, Baker Hughes data showed, with some analysts expecting the US rig count will rise to 850-875 by the end of the year.

US crude slumped 3.8 percent on Monday but were steady early on Tuesday, up 0.1 percent at $52.02 a barrel.

Global benchmark Brent also dropped 3.8 percent to $54.82 a barrel on Monday.

In currencies, sterling slumped 1 percent on Monday, extending Friday's 1.1 percent slide, after British Prime Minister Theresa May said on Sunday the country would not be keeping "bits" of European Union membership, without providing more detail on her strategy.

May's comments stoked fears of a "hard Brexit", in which border controls are prioritized over market access.

EU officials say Britain cannot have access to its single market of 500 million consumers without accepting the principle of free movement and have repeatedly warned May against trying to "cherry pick" the profitable parts of their union.

The pound was fractionally higher at $1.2164 early on Tuesday.

The drop in risk appetite pushed the dollar lower against the safe-haven yen.

The US currency was down 0.28 percent to 115.67 yen in early trade on Tuesday, after declining 0.8 percent on Monday.

The dollar index, which tracks the greenback against a basket of six global peers, edged down 0.1 percent to 101.85, extending Monday's 0.3 percent loss.

The euro climbed 0.1 percent to $1.0588 on Tuesday.

Gold shone amid investors' quest for safety. Spot gold , which jumped to a more than one-month high on Monday, added 0.1 percent to $1,182.24 an ounce in early trade on Tuesday.

source: news.abs-cbn.com

GE to merge oil unit with Baker Hughes to create service giant

General Electric Co. said on Monday it would merge its oil and gas business with Baker Hughes Inc., creating the world's second-largest oilfield services provider as competition heats up to supply more-efficient products and services to the energy industry after several years of low crude prices.

The deal to create a company with $32 billion in annual revenue will combine GE's strengths in making equipment long-prized by oil producers with Baker Hughes's expertise in drilling and fracking new wells.

Shares of Baker Hughes were down nearly 7 percent, a drop that executives said likely was due to the deal's complicated structure.

"This is a good deal for all of the investors," said Lorenzo Simonelli, head of GE's oil and gas business who will lead the new entity, to be called "Baker Hughes, a GE company."

GE is already the world's largest oilfield equipment maker, supplying blowout preventers, pumps and compressors used in exploration and production. GE also has invested heavily in large data processing services just as the oil industry eyes its potential to boost oil recovery.

Baker Hughes, by contrast, is seen as one of the world leaders in horizontal drilling, chemicals used to frack and other services key to oil production.

The new company will vault Baker Hughes's market share ahead of rival Halliburton Co., which tried and failed to buy Baker until the deal collapsed last May, and also compete heavily with Schlumberger NV, the world's largest oilfield service provider, for customers.

Simonelli called Baker CEO Martin Craighead after the Halliburton deal collapsed, seeking some kind of business combination, with negotiations evolving over time to Monday's announcement.

"Neither Lorenzo (Simonelli) or I needed to do this. We both followed our fiduciary responsibility," Craighead said in an interview.

GE will own 62.5 percent of the new publicly-traded company. The deal is expected to close in mid-2017.

GE will have to pay $1.3 billion to Baker Hughes if the deal does collapse in what would be yet another windfall for Baker Hughes after Halliburton was forced to pay it $3.5 billion earlier this year when those companies' merger collapsed.

"We don't anticipate anything like what we've encountered before happening again," Craighead said, stressing he expects the GE tie-up to be blessed by regulators.

GE and Baker Hughes will reach out to the Justice Department and European antitrust enforcers on Monday, according to a source close to the company. GE will argue to antitrust enforcers - who stopped the deal between Halliburton and Baker Hughes just months ago - that their deal is complementary, and that they are committed to any remedy needed to win approval, the source said.

A small part of GE's business is selling equipment to Baker Hughes' competitors and it will continue those sales, the source said.

All of GE's oil and gas business, which generated roughly 14 percent of GE's revenue last year, will go into the new company, leaving no energy units behind in its former parent, Simonelli said.

The "best performers" from the existing GE and Baker Hughes will form new management teams, he added, declining to comment on potential layoffs.

Analysts said there was little overlap between the businesses that would worry regulators.

"I don't see any overlaps, significant overlaps," said Tom Seng, a veteran of the energy business who teaches at the University of Tulsa.

OIL NEAR $50

The deal comes at a time when North American oil and gas producers are putting rigs back to work after a near-freeze in activity caused by a slump in oil prices that began mid-2014.

But the deal is predicated on a forecast for oil prices to rise to $60 per barrel by 2019, GE Chief Executive Jeff Immelt told investors Monday.

"This is a very compelling time for the deal," Immelt said, noting he expects $1.6 billion in annual cost savings by 2020.

Global oil prices have risen by a third this year to near $50 a barrel.

Craighead, who will become vice chairman of the new company, echoed Immelt's confidence.

"We see growth under any market environment," Craighead said in an interview. "Our customers continue to spend massive amounts of money."

The industry-wide push for pumping more oil and natural gas at cheaper costs should only accelerate that trend, he said.

Activist investor Nelson Peltz, whose Trian Fund Management owns about 0.8 percent of GE as of June 30, told CNBC the new company would be able to go "nose-to-nose" with Schlumberger.

Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 per share - or $7.4 billion - after the deal closes.

The new company, to be listed on the New York Stock Exchange, will have dual headquarters in Houston and London.

Baker Hughes shares rose as much as 5 percent in morning trade before reversing course to trade down nearly 8 percent at $54.60. Shares of GE slipped 0.1 percent to $29.18.

Centerview Partners and Morgan Stanley are advising GE, while Shearman & Sterling is its legal adviser. Goldman Sachs & Co is Baker Hughes's financial adviser, with Davis Polk acting as legal adviser.

source: www.abs-cbnnews.com

Three-day rally pushes oil prices to 2015 highs

NEW YORK - Oil prices surged higher for a third straight day Tuesday, hitting late-2014 peaks on hopes of rebounding global energy demand and production cuts that could curb the supply glut.

The US benchmark, West Texas Intermediate for March delivery, soared $3.48, or seven percent, to $53.05 a barrel, the highest WTI close since December 31.

In London, Brent North Sea crude for delivery in March jumped $3.16 (5.8 percent) to settle at $57.91, its best reading since December 30.

"The strong rally continues in the oil market as both Brent and WTI front-month futures extended gains and climbed higher... supported by increased appetite amid hopes of a rebound of the global oil demand in the first half of 2015," said Myrto Sokou, analyst at Sucden brokers.

WTI has gained $8.53, or nearly 20 percent, since the rally began Friday on signs the industry is quickly tightening exploration activities.

The Baker Hughes North America rig count reported on Friday fell sharply for the week to January 30, dropping by 128 rigs to 1,937 for the week to January 30. That compared with 2,393 a year ago.

Deep cuts in capital spending by major oil companies, including new announcements Tuesday by BP and BG Group, also suggested there would be tighter supplies in the future.

"A lot of factors are at play. Obviously, the capital spending cuts just keep coming, with BP, and we're seeing one of the fastest drops of spending across the sector I can remember," said Phil Flynn of Price Futures Group.

In addition, the oil market was feeling the pinch of a weaker dollar Tuesday, he said. "It's not just about supply and demand -- the dollar definitely has an influence."

Some analysts cautioned the current oil price rebound likely would not last because supplies still far outweigh demand.

"Oil ... has enjoyed the combination of weakening supply and rising demand fundamentals to maintain its surge for another day," said Chris Beauchamp, market analyst at trading firm IG.

"Oversupply does not disappear overnight, however, and the jury is still out on whether this bounce (in prices) has much further to run."

source: www.abs-cbnnews.com