PR: Oil prices inch higher despite stronger US dollar
Oil prices rebounded today, moving slightly higher following a rough week that saw equities and commodities decline on weaker than expected US macroeconomic data. The Labor Department reported an unexpected rise in initial jobless claims to nine month highs at 500,000, while the Philly Fed manufacturing activity index showed the first contraction since July 2009 with a decline from 5.1 to -7.7.
This data followed a steeper than expected drop in non-farm payrolls reported earlier this month and downbeat assessments of the economy by the Federal Reserve and the Bank of England (BoE).
Investors are now looking to the first revision of US Q2 GDP, which will be out on Friday and provide more clues about the pace of the economic recovery. The markets are increasingly pessimistic in the wake of the recently released downbeat jobs and manufacturing data and risk aversion is expected to increase during this week ahead of Friday’s GDP figures, which should lift safe haven assets such as gold and the US dollar. The American currency has been on the rise against the euro recently with the EUR/USD rate hitting six week lows on Friday.
The French government has lowered its growth forecast for the French economy to 2% for 2011, while a council member of the European Central Bank (ECB) spoke against scrapping the economic stimulus until at least Q1 2011. The news applied further pressur eon the euro and reinforced concerns over the euro zone economy.
The euro remained weak today, sliding to 1.2711 following early gains against the US dollar after the euro zone’s services PMI (purchasing managers index) fell from 55.8 in July to 55.6 in August, while manufacturing PMI declined from 56.7 to 55.0, failing to meet expectations.
The downward trend in the euro limited gains in oil prices. A stronger greenback makes dollar denominated commodities such as crude more expensive for holders of other currencies, curbing demand.
Movements in equity markets serve as an indicator of the strength of the economy and the outlook for energy demand.
Oil prices trimmed early gains following the decline in euro. October Brent Crude stood at US$74.58/barrel, while US light, sweet crude for October delivery slipped back below US$US$74/barrel.
Supermajors BP (LON:BP) and Shell (LON:RDSB) were sitting just below the opening levels, while other blue chip oil and gas producers advanced. BG Group (LON:BG) and Tullow Oil (LON:TLW) posted small gains, while Cairn Energy (LON:CNE) led the way with a 2% climb.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) did well, tacking on 1% and 2.5% respectively.
Midcaps were in the black with the sole exception of Salamander Energy (LON:SMDR) which declined 0.5%.
Melrose Resources (LON:MRS) was the top performer in the group with a gain of over 4%. Soco International (LON:SIA) followed, tacking on 2%. Dana Petroleum (LON:DNX), Dragon Oil (LON:DGO), Heritage Oil (LON:HOIL), JKX Oil & Gas (LON:JKX) and Premier Oil (LON:PMO) added less than 1%.
Wood Group (LON:WG) was flat, while another services company, Wellstream Holdings (LON:WSM), advanced 1.5%.
Mediterranean and North African area focused explorer and producer Petroceltic International (LON:PCI) and Mongolia focused Petro Matad (LON:MATD) were among the best performers in the sector, rallying 11% and 7% respectively.
