PR; Oil prices decline further as M&A optimism fades
Oil prices headed south following yesterday’s reversal in US markets, where the main stock indexes ended the day in the negative after advancing in early trade. The markets were supported by M&A activity on Monday with Hewlett Packard (NYSE:HP) announcing a US$1.6 billion bid for data storage company 3PAR, while insurer Old Mutual (LON:OML) confirmed it was in exclusive talks with HSBC (LON:HSBA) over the sale of a majority stake in its South African bank Nedbank. On top of that, it was speculated that beverage group SABMiller (LON:SAB) was considering an offer of almost US$11 billion for Foster’s Carlton & United Breweries.
The Dow Jones and the broader S&P 500 indexes were off to a positive start in the morning, but declined later in the day as lingering concerns over the pace of the economic recovery and fears of a double dip recession outweighed the M&A optimism.
The FTSE 100 lost more than 1% today after tacking on 0.75% on Monday, while futures for the Dow Jones index slipped 0.7%, pointing to a lower start on Wall Street. Crude futures usually track movements in stock markets as changes in share prices serve as an indicator of the current rends in the economy, providing clues about the outlook for energy demand.
Investors are currently being cautious ahead of Friday’s update on the Q2 US GDP estimate with a downward revision expected in view of the weak US economic data that has had the markets under pressure for the whole month. Steep declines in non-farm payrolls reported early in the month were followed by gains in initial jobless claims, which currently stand at nine month highs, as well as downbeat manufacturing data.
In the latest update, the Chicago Fed national activity index stood at zero in July, up from June’s -0.7. However, the three month moving average slid from -0.12 to -0.17, showing that growth has been below historical trend. Last week’s update on the Philly Fed index fell well short of expectations, while the index of leading indicators increased by just 0.1% in July.
The markets are awaiting today’s updates on US existing home sales and the Richmond Fed manufacturing index. Analysts polled by Reuters expected a decline from an annualised total of 5.37 million units in June to 4.7 million units.
Movement in currency markets have been favourable for crude with the US dollar declining against a basket of six other major currencies. That, however, did little to support the prices.
October Brent Crude slid to US$73.07/barrel, while US light, sweet crude declined to US$72.40/barrel.
Blue chip oil and gas producers were in decline today. Supermajors BP (LON:BP) and Shell (LON:RDSB) retreated 2.7% and 1% respectively. Other FTSE 100 constituents, BG Group (LON:BG), Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW) all shed about 1%.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) slid 1.4% and 1%.
Midcaps were mixed. Dana Petroleum (LON:DNX) and JKX Oil & Gas (LON:JKX) posted small gains, while Salamander Energy (LON:SMDR) did better, tacking on 1.1%.
Soco international (LON:SIA) moved in the opposite direction, shedding 2.6%. Dragon Oil (LON:DGO), Heritage Oil (LON:HOIL), Melrose Resources (LON:MRS) and Premier Oil (LON:PMO) were sitting just below the opening level.
Wood Group (LON:WG) climbed 1.4%. Another services company, Wellstream Holdings (LON:WSM), posted a small loss.
Energy focused investor Xtract Energy (LON:XTR) and Iraq focused explorer Petrel Resources (LON:PET) moved with the sector, shedding 8% and 5.5% respectively.
