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Tuesday, December 01, 2009

Oil Rebounds on China Manufacturing Data

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Crude oil found enough stimuli to rebound back above $78 per barrel today, as Dubai-related fears eased bearish sentiment while a weaker US dollar and improving Chinese manufacturing data provided additional support.


Two separate reports - conducted independently by China’s government and international banking group HSBC - both revealed a sharp rise in Chinese manufacturing. As western economies, particularly the United States stumble out of recession, the oil market has become increasingly dependent on the future growth in Chinese consumption.


Crude oil also appears to be buoyed by positive sentiment from UAE Central Bank, which reassured investors generally. Both commodities and equity markets have begun to recover after last week’s shake-out.


Additionally the US Dollar’s temporary recovery has waned and once again turned negative. The Dollar Index fell another half percent lower again this morning. The US Dollar index represents the relative strength of the greenback versus a basket of the 6 other major global currencies.


Like all major commodities, crude oil is primarily priced in dollars therefore a weaker dollar increases the inherent value of the commodity particularly for investors outside the US. For example as the value of the dollar declines against the Euro, someone investing in oil with Euros would be able to buy more oil per Euro invested.


London’s major oil and gas stocks were on the rise this morning. BG Group (LSE: BG) and Tullow Oil (LSE: TLW) gained 1.6%, as did BP (LSE: BP), while fellow supermajor Shell (LSE: RDSB) advanced 1.3%. Cairn Energy (LSE: CNE) and Petrofac (LSE: PFC) led the way with gains of nearly 2%.


Midcaps were mixed as while Dana Petroleum (LSE: DNX) added 1.6% and Heritage Oil (LSE: HOIL) rose 1.2%, Dragon Oil (LSE: DGO) posted a small loss after advisory firm RiskMetrics Group recommended Dragon’s minority shareholders in favour of the proposed 455 pence per share offer from Emirates National Company Oil Limited, which has recently said that the offer was final and would not be raised.


Junior energy companies didn’t show much movement this morning. South American Focused explorer Pan Andean Resources (AIM: PRE) was among the top performers with a 4% climb.

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