Oil tests $80 as markets rally on HSBC results

Crude futures reclaimed the US$79/barrel level today, moving close to US$80/barrel, powered by a rally in global equity markets and concerns over the August hurricane season that could disrupt oil production in the Gulf of Mexico.
The HSBC China Manufacturing PMI (purchasing managers index) released over the weekend showed a decline from 50.4 in June to 49.4 in July, reflecting a slowdown in manufacturing activity in the country. The news, however, had a positive effective on Chinese and Asian stocks, helping the Shanghai Composite Index to a 1.3% gain. Investors were optimistic that the contraction in the manufacturing sector will prompt the government to halt the policy tightening measures it has been actively implementing this year to prevent the rapidly growing economy from overheating.
The government’s official figures also showed a decline in the manufacturing PMI from 52.1 to 51.2, though it still stayed above 50, signalling expansion, yet at a slower pace.

 

Crude prices got more support from surging stock markets. The FTSE 100 jumped 2% today after HSBC (LON:HSBA) opened the banking reporting week with a strong set of interim results, which showed a twofold increase in profits to £7 billion. Part-nationalised bank Lloyds (LON:LLOY), which will release its report on Wednesday, is expected to post a profit of nearly £1 billion.
The bullish factors more than offset the negative impact from the soaring US inventories. Last week, the American Petroleum Institute (API) reported a 3.8 million barrel increase in US crude stockpiles, while a more closely watched report from Energy Information Administration (EIA) revealed a gain of 7.3 million barrels, reflecting lower demand in the world’s leading energy consumer.
September Brent Crude rose to US$79.29/barrel, while US light, sweet crude for September delivery improved to US$79.91/barrel on New York Mercantile Exchange (NYMEX).
Blue chip oil and gas producers were in demand today. Supermajors BP (LON:BP) and Shell (LON:RDSB) climbed 1.8% and 3.4% respectively. BG Group (LON:BG), Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW) advanced 2.3%, 2.7% and 4.5% respectively.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) added 2.5% and 3.6%.
Midcaps also did well with the sole exception of JKX Oil & Gas (LON:JKX), which posted a small loss. Dana Petroleum (LON:DNX) and Melrose Resources (LON:MRS) gained less than 1%. Dragon Oil (LON:DGO) and Premier Oil (LON:PMO) added 2.3% and 2.2% respectively, while Soco International (LON:SIA) climbed 4.4% and Salamander Energy (LON:SMDR) took the lead with a 5.6% advance.
Services companies followed with Wood Group (LON:WG) and Wellstream Holdings (LON:WSM) tacking on 5.8% and 5.1% respectively.
Western Europe operating oil and gas company Northern Petroleum (LON:NOP) and Ukraine focused gas producer, Regal Petroleum (AIM: RPT) led the juniors with gains of 8%. US focused oil and gas junior Caza Oil & Gas (LON:CAZA) and Peru, Colombia and Cuba operating oil and gas explorer and producer Gold Oil (LON:GOO) rallied 7.5% and 7%.
Energy investor Xtract Energy PLC (LON:XTR) headed in the opposite direction, slipping 9.5%. Mongolia-focused Petro Matad Ltd (LON:MATD) followed, shedding 5%.

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