PR: Oil prices fall despite declines in US inventories as equities tumble
Oil prices extended losses today despite bullish inventories data as the sell off in equity markets continued after China reported a rise in its CPI (consumer prices index) to 3.3% from 2.9%, eclipsing its full year target of 3%. Growth in CPI could prompt the Chinese government to introduce yet more monetary policy tightening measures to curb inflation and prevent the economy from overheating, thus cutting its energy demand. China is the world’s second largest energy consumer behind only the US.
On Monday, China said its crude imports fell 3.1% to 4.5 million barrels a day in July.
The Bank of England applied more pressure on the markets today, slashing its growth forecasts for 2011 to 2.5% from 3.4%, which would go up to 3% in 2012. Governor Mervyn King said that the recovery in the UK was going to be “choppy,” causing stocks in Europe and US futures to head south.
The FTSE 100 tumbled 1.9%, while futures for the Dow Jones Industrial Average were down 1.5%, pointing to an early fall on Wall Street.
Yesterday’s inventories report from the American Petroleum Institute (API) revealed a decline of 2.2 million barrels in US crude stockpiles and gasoline stocks shed 1.5 million barrels, signalling higher demand. A more closely watched report from US Energy Information Administration (EIA) is due out later today. Last week, EIA reported that crude stocks decreased by 2.8 million barrels, however, gasoline inventories added 729,000 barrels.
September Brent Crude retreated to US$78.71/barrel, while US light, sweet crude for September delivery declined to US$79.25/barrel.
Blue chip oil and gas producers were in decline today. Supermajors BP (LON:BP) and Shell (LON:RDSB) shed 1.6% and 2.2% respectively. BG Group (LON:BG) lost 1%, while Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW) added just over 2%.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) lost nearly 2%.
Midcaps followed. Melrose Resources (LON:MRS) and Premier Oil (LON:PMO) slid 3.1% and 2.6% respectively. Dragon Oil (LON:DGO) and Soco International (LON:SIA) moved down 1.4%. Dana Petroleum (LON:DNX) and Salamander Energy (LON:SMDR) were sitting just below the opening level.
Heritage Oil (LON:HOIL) tumbled 20% after Uganda’s energy minister said the company’s asset sale to Tullow Oil was incomplete until it paid US$405 million in capital gains taxes.
Services companies also were in decline with Wood Group (LON:WG) and Wellstream Holdings (LON:WSM) shedding 2.4% and 3.2% respectively.
Most juniors followed the trend. Energy investor Xtract Energy PLC (LON:XTR) slipped 9.5%, Western Europe operating oil and gas company Northern Petroleum (LON:NOP) and Iraq operating Irish oil company Petrel Resources (LON:PET) each shed 8%. Atlantic Canada operating oil and gas group Enegi Oil (LON:ENEG) retreated 5.5%.
