Crude futures edged higher this week as weakness in the US dollar helped shake off reports of further build-ups in US crude supplies.
Crude prices were aided by movements in currency markets. The US dollar has been in decline this week amid anticipation of further quantitative easing (QE) from the Federal Reserve.
The likelihood of the Fed printing money and buying more government debt to boost the slowing recovery increased after Friday’s data from the Labor Department revealed a massive decline of 95,000 in non-farm payrolls, while the unemployment rate was unchanged at 9.6%.
Such a large drop was unexpected, especially after jobless claims data released in the previous day showed a decline of 11,000 in initial jobless claims, which fell to 445,000. The less volatile four week moving average declined 3,000 to 455,750 and continuing claims dropped 48,000 to 4.46 million.
Friday's data served as yet another sign that the recovery is indeed running out of gas and further intervention from regulators is required in order for it to pick up.
Earlier this week, the Bank of Japan slashed its interest rates from 0.1% to a range between 0 and 0.1% before passing a US$61.3 billion stimulus package.
The growing sentiment that the Fed will follow suit have pressured the US dollar, driving the EUR/USD rate above 1.40.
Weaker US dollar makes dollar-denominated commodities such as crude oil cheaper for holders of other currencies, boosting demand.
This week, OPEC’s third largest producer Abu Dhabi hiked its oil prices for the second month in a row. The emirate’s Murban crude is now worth US$75.90/barrel, up 2% from August.
Futures for Murban crude hit 16 month highs last month amid increased demand from refineries.
No changes to the current output policy are expected at OPEC’s next meeting on 14 October, being comfortable with the current price range. The cartel made substantial cuts to production quota in December 2008 in response to a sharp drop in oil prices.
Oil minister of the United Arab Emirates said today he was not concerned with the current price level of over US$80/barrel and that there were signs that the economy was recovering.
He also noted that the market is oversupplied.
Supplies are indeed rising as this week’s inventories data showed further gains in US crude oil stockpiles.
According to the US Energy Department, crude inventories shed 3.1 million barrels last week, while the American Petroleum Institute (API) reported a huge gain of 4.4 million barrels on Tuesday.
However, both reports also showed substantial declines in gasoline inventories, giving support to the prices.
November Brent Crude ended the week at US$84.19/barrel, while US light, sweet crude for November delivery reached US$82.80/barrel.
Shell (LON:RDSB) rose from 1,887 pence to 1,898 pence, while other blue chips declined. Fellow supermajor BP (LON:BP) fell from 440 pence to 435 pence.
Cairn Energy (LON:CNE) retreated from 457 pence to 432 pence, BG Group (LON:BG) dropped from 1,170 pence to 1,153 pence and Tullow Oil (LON:TLW) moved down from 1,308 pence to 1,276 pence.
Amec (LON:AMEC) fell from 1,010 pence to 997 pence, while another oil and gas engineering firm Petrofac (LON:PFC) was unchanged at 1,392 pence.
Small Cap News
According to stock exchange data the number of Leni Gas & Oil (LON:LGO) trades nearly trebled from the average in the preceding 10 months, and the stock has almost reached September’s marker in this month already. The company’s recent news-flow has centred around its Spanish assets. Last week, LGO said it believes that artificial stimulation will maximise total recoverable reserves on its Spanish acreage.
With the successful completion of Russell-Bevly #1, a revised reserve report on the North Chapman Ranch in Texas has been released by Range Resources (ASX:RRS, LON:RRL) following the successful drilling and completion of the Russell-Bevly #1 appraisal well earlier this year, increasing Range’s attributable commercially recoverable reserves by 67%.
The drop in the Aurelian Oil & Gas (LON:AUL) share price on Wednesday may have been the last buying opportunity prior to key drilling news in Poland, according to FinnCap analyst William Arnstein. In the broker’s ‘First Thoughts’ note to clients Arnstein emphasised that the dry joint venture well in Bulgaria was immaterial to the AIM stock’s valuation and investment case. Earlier this week, the company said the disappointing exploration results in Bulgaria will have minimal impact on its finances after JKX Oil & Gas (LON:JKX) reported that the ‘Staro Oryahovo South R-01’ exploration well is being plugged and abandoned, after testing demonstrated the target was 'water wet’.
Petro Matad (LON:MATD) shares made another new high after the Davsan Tolgoi follow-up well found ‘significant hydrocarbons’. Davsan Tolgoi 2 (DT2) was drilled on the same structure as the DT-1 discovery well, which encountered a 71m thick section of the targeted Tsagaantsav formation back in July.
Green Dragon Gas (LON:GDG) has agreed to acquire an equity interest in Sinoenergy, moving towards its goal of building a significant coalbed methane (CBM) upstream business in China.
Mediterranean Oil & Gas (LON:MOG) was among the ‘Top Risers’ on London’s AIM market with a 35% gain at one point this week, on news that gas production came on-stream from its Anzano-1 (ANZ-1) well onshore Italy. The company has appointed CIBC World Markets to review its strategic options, including a possible sale of the company.
Gulfsands Petroleum (LON:GPX) has found oil to the south of its producing Yousefieh oilfield in Syria. The Yousefieh South -1 (YSO-1) exploration well encountered 11.5 gross metres of an oil bearing reservoir, however, more work is required on the well, as initial flow testing did not recover commercial volumes.
Shares in EnCore Oil PLC (LON:EO) rose on AIM after the group announced promising initial results of the second side-track on UK Northern North Sea Block 210/29a which contains the Cladhan discovery.
Evolution Securities oil expert David Farrell expects Rockhopper Exploration (LON:RKH) to carry out a rights issue sooner rather than later. The analyst noted a newspaper report over the weekend, which claimed a US$150 - US$200 million rights issue is being planned by the AIM-listed explorer.
Pan African Resources (LON:PAF) has agreed to sell a 85.1% beneficial interest in its Akrokerri gold project in Ghana, from which it withdrew in early 2009. The stake will be sold to fellow AIM listed miner GoldStone Resources (LON:GRL), which believes that the permit is prospective. Goldstone is the party that announced the deal this mornming.
Large and Mid Cap News
Premier Oil (LON:PMO) it setting up a joint venture with Antrim Energy (LON:AEY, TSX:AEN) to jointly study options for the Fyne Area in the UK Central North Sea.
BP (LON:BP) has signed a new production sharing agreement to explore and develop a structure in the Azerbaijani Caspian Sea. This week, the supermajor hired AMEC (LON:AMEC) to provide engineering and project management services (EPMS) for the oil major’s onshore projects. This is in addition to the global agreement the companies signed for offshore EPMS projects in June 2008.