Since peaking around $80 per barrel in Tuesday’s pre-market, crude oil futures have eased somewhat largely due to disappointing supply data from the American Petroleum Institute (API). This morning on London’s Intercontinental Exchange (ICE) the WTI Crude future has fallen more than 1% from an intraday high of $79.00, December futures are currently changing hands around $78.16.
Last night, the American Petroleum Institute revealed that crude stocks rose 3.8m barrels last week. Its weekly US oil supply report more than doubles the initial analyst forecasts. Investors will now look to the US Energy Department’s supply data. The inventory report from the Energy Information Administration (EIA) is due to be released at 14:30 GMT.
Last week the EIA’s report revealed a 5.2m barrel decrease in Gasoline stockpiles which initially sparked the latest rally in the oil market. However several commentators have stated that the headline figures glossed over the more bearish refinery data which showed that refining output was reduced by 4%, indicating that demand is actually falling.
U.S. supplies of refined distillates are at a 25-year high. The United States currently has stockpiled more than 29m, more barrels of oil than this time last year. Additionally OPEC identified that internationally approximately 125m additional barrels of oil are currently stored in offshore tankers.
The Organisation of Petroleum Exporting Countries (OPEC) has expressed concerns over the recent crude oil rally. Yesterday Secretary GeneralAbdallah Salem el-Badri warned that the rise in prices was not linked to supply and demand in the oil market. Instead el-Badri identified a weak dollar and recovering equity markets as cause of the rally.
The Secretary General stated that sustained crude prices in excess of $80 per barrel would not be good for the global recovery. Several other commentators have also warned that higher crude prices will potentially curtail the emerging recovery, as higher production costs and energy prices will dampen the fragile economic growth.According to OPEC’s el-Badri, the cartel would consider altering production levels at its December meetings depending on the oil price and the level of the ‘floating surplus’.
Its appears as though the crude oil market is finely poised between a growing investment asset for both private and institutional investors and the potential of it becoming a burden for the fledgling economic recovery.
For the remainder of the week investors will await the upcoming supply data and also remain focused on the demand picture. The American company reporting season will continue to be a key feature in the oil market for the rest of the week. The country's retailers and consumer stocks are taking their turn in the spotlight.
Last week Wall Street’s major financial companies boosted many analysts' recovery outlook. The resulting confidence in equities has directly translated into strong oil prices as analysts anticipate an improvement in demand.
On the London Stock Exchange, all major oil and gas stocks were generally weaker with a few brighter spots. BG Group (LSE: BG) was the worst effected, falling 2.5%. Cairn Energy (LSE: CNE) fell 1.4% while Royal Dutch Shell (LSE: RDSB) dropped 1%. British Petroleum (LSE: BP) were more robust losing just over half a percent.
Petrofac (LSE: PFC) and Tullow Oil (LSE: TLW) moved in the opposite direction rising one percent and half a percent respectively.
In the FTSE 250 Heritage Oil (LSE: HOIL) was the only stock in the sector to make any progress, rising 1%.
Soco International (LSE: SIA) was the weakest in the FTSE 250, falling 3%. JKX Oil & Gas (LSE: JKX) and Premier Oil (LSE: PMO) were quite weak also, sliding more than 2% each. Dana Petroleum (LSE: DNX), Dragon Oil (LSE: DGO) and Afren (LSE: AFR) all traded lower, losing more than 1% each.
In the AIM market, many Oil & Gas enjoyed a more positive session. Texas operating junior, Txo (AIM: TXO) was the strongest performer among Aim’s Oil & Gas stocks this morning, shares surged 38% on relatively strong volume although there has not been any official news flow out of the company.
North American operating Sefton Resources (AIM: SER) rose around 9%, while Cental American focused Geopark (AIM: GPK) advanced more than 8.5%. Columbia & Paraguay operating explorer Amerisur (AIM: ALR) gained more than 6% this morning.
Falkland Island focused explorer’s Desire Petroleum (AIM: DES) and Rockhopper Exploration (AIM: RKH) both gained 5%. Similarly Europe and Russian based explorer Matra Petroleum (AIM: MTA) and Nostra Terra (AIM: NTOG) also advanced 5% by lunchtime.
Diversified exploration financier Empyrean Energy (AIM: EME), Xstract Energy (AIM: XTR) and Aminex (AIM: AEX) all rose more than 4%.