Crude has been in line for the better part of the last week before reaching five week lows on Monday. The negative trend in oil prices was reversed today as equities and commodities climbed on positive recovery sentiment following yesterday’s update on the Empire State manufacturing index, which improved from 5.08 in July to 7.10 in August. Oil has surged past US$76/barrel and is now in a position to snap the five day losing streak.
The FTSE 100 advanced 0.9%, while futures for the Dow Jones Industrial Average rose 0.4%, pointing to a positive start on Wall Street.
Recovery fears have caused a decline in the US dollar against other major currencies, including the euro and Japanese yen. Last week’s jobs report showed a 2,000 increase in initial jobless claims to five month highs at 484,000, raising concerns about the strength of the economic recovery in the US. Both the Federal Reserve left its ultralow interest rates unchanged last week and said it would buy more US bonds to bolster the economy.
The EUR/USD rate currently stands at 1.2888. The increase in the euro was limited after Germany’s ZEW economic sentiment index declined from 21.2 to 14.0, while little if any change was expected.
Weakness in the US dollar makes dollar-denominated commodities such as oil attractive for holders of other currencies, boosting demand.
Investors are now looking to today’s economic updates, which will include US industrial production, producer price index and housing starts. Inventories reports from the American Petroleum Institute (API) and US Energy Information Administration (EIA) will be released today and on Wednesday respectively.
September Brent Crude climbed to US$76.70/barrel, while US light, sweet crude for September delivery rose to US$76.20/barrel.
Blue chip oil and gas producers were mixed. BP (LON:BP) was sitting just below the opening level, while oil and gas suprmajor Shell (LON:RDSB) did better, advancing 1.7%. BG Group (LON:BG) and Tullow Oil (LON:TLW) climbed 1.4% and 1.9% respectively.
Cairn Energy (LON:CNE) lost 1.6%.
Oil and gas engineering firms did better with Amec (LON:AMEC) and Petrofac (LON:PFC) advancing 1.8% and 3.4%.
Midcaps didn’t show much movement. Dana Petroleum (LON:DNX), Dragon Oil (LON:DGO), JKX Oil & Gas (LON:JKX) and Melrose Resources (LON:MRS) added less than 1%, while Heritage Oil (LON:HOIL) and Salamander Energy (LON:SMDR) declined marginally.
Premier Oil (LON:PMO) was deeper in the red with a 1.6% loss.
Wellstream Holdings (LON:WSM) posted a gain of less than 1%. Another services company Wood Group (LON:WG) did better, rising 1.6%.
Africa focused energy company Dominion Petroleum (LON:DPL) led the juniors with a 16.5% rally. Iraq operating Irish oil company Petrel Resources (LON:PET) followed with an 8% gain.
Energy investor Xtract Energy PLC (LON:XTR) headed in the opposite direction, shedding 14%. US focused oil and gas junior Caza Oil & Gas (LON:CAZA) and Atlantic Canada operating oil and gas group Enegi Oil (LON:ENEG) declined 8% and 6.5% respectively.
