Oil prices were in decline today as markets in both the US and Europe suffered yet another round of losses amid concerns about China’s economic growth. The selloff was triggered by the Conference Board’s update on its index measuring the economic growth in China, which rose by just 0.3% in April compared to a 1.7% increase reported in early June. This also marked the smallest gain in five months.
China’s demand for oil and especially metals has been the key factor supporting the mining sector during the economic downturn, as well as the main driver behind the ongoing recovery in the sector. Lower rates of economic growth lead to declines in demand, which in turn brings down the prices and affects miners’ revenues and sales.
The Dow Jones Industrial Average is currently projected to shed 1% in early trade after closing flat on Monday, while the UK’s FTSE 100 has once again slipped below the key 5,000 level after suffering a 2% loss today.
Crude prices have recently been moving along with global equity markets as investors have been taking clues about the outlook for oil demand from movements in share prices.
Oil futures surged to US$79/barrel at the end of last week amid fears that the first tropical storm of the 2009 hurricane season would develop into a hurricane and disrupt oil production and refinement in the Gulf of Mexico as well as BP’s ongoing efforts to contain the disastrous oil spill. However, it has now been confirmed that Alex would bypass the area and hit the Texas-Mexico border.
The news further pushed down the prices, causing August Brent Crude to retreat to US75.80/barrel, while US light, sweet crude for August delivery dropped to US$76.29/barrel on the New York Mercantile Exchange (NYMEX).
All blue chip oil and gas producers were in decline today. BP (LON:BP), which is not disclosing its Chief Executive Tony Hayward’s whereabouts, declined 2% today, while fellow supermajor Shell (LON:RDSB) lost 3%. Russia’s deputy Prime Minister Igor Sechin said yesterday that Hayward would soon resign, which, however, was swiftly denied by BP. Sechin will reportedly meet with Hayward sometime this week.
BG Group (LON:BG) also lost 2%, while Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW) slipped 4% and 4.7% respectively.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) retreated 3.7% and 4.6% respectively.
Midcaps followed the trend with the sole exception of Melrose Resources (LON:MRS), which added nearly 1%. Dana Petroleum (LON:DNX) was at the bottom of the pile with a 6% decline. Salamander Energy (LON:SMDR) and Premier Oil (LON:PMO) lost 4.4% and 3.2% respectively. Soco International (LON:SIA) and Heritage Oil (LON:HOIL) were down 2.7%. Dragon Oil (LON:DGO) lost 2% and JKX Oil & Gas (LON:JKX) was sitting just below the opening level.
Most junior companies moved along with the majors. Atlantic Canada operating oil and gas group Enegi Oil (AIM: ENEG) led the retreat, slipping 13.4%. Peru, Colombia and Cuba operating oil and gas explorer and producer Gold Oil (LSE: GOO) and Western Europe operating oil and gas company Northern Petroleum (AIM: NOP) declined 8%, while Ukraine focused gas producer, Regal Petroleum (AIM: RPT) lost 7.5%.