KUALA LUMPUR, Jan 28 (Bernama) -- Bursa Malaysia snapped its five-day winning streak to close lower on Wednesday, as investors took profit following a cumulative gain of 4.25 per cent over the past five sessions, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) fell 14.76 points or 0.83 per cent to 1,756.49 from Tuesday’s close of 1,771.25. The market bellwether opened 1.46 points lower at 1,769.79, marking the day’s high, and hit a low of 1,750.05 during the mid-afternoon session. Market breadth was negative with losers trouncing gainers 876 to 384, while 525 counters were unchanged, 964 untraded and 94 suspended. Turnover improved to 3.65 billion units worth RM4.41 billion from Tuesday's 3.58 billion units worth RM4.46 billion.
It was difficult to imagine that the oil price will be at 70 per barrel 6 months ago but today, the oil price has plunged to $70.15 per barrel.
OPEC's decision not to cut production is indirectly a declaration of price war in the crude market and the challenge to US shale drillers.
Here is a look at why the sharp drop in the oil price.
First, US production has nearly doubled in recent years to 9 million barrels a day and analysts expect the production to rise by more than 1 million next year. And like all commodities and trades, an oversupply will drive the prices down. With this supply, Saudi Arabia and OPEC have essentially surrender to the inevitability of the lower prices from the exploding improvement in the US energy production.
As OPEC maintained their output target, the oil price plunged to a point where some of the shale projects may lose money.
This is a new era, where the market itself will manage supply. Saudi Arabia and OPEC knew it and their decision is a sign of surrender. The markets have changed for many years to come.
To a certain extend, this is a victory to the US energy independence. It is also a victory for the workings of the free market. Greater supply and not government cartel that drives the price down.
The next question that comes into mind is this: HOW LOW CAN THE OIL PRICE GO?
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