Inventory & Production Push and Pull Energy Prices

Crude oil recovered 12 cents this morning on the strength of Chinese data to trade at 96.51 while Brent added 29 points to move to 109.22 as the spread continues to widen, now at just under $13.  European data weighed heavily on the energy markets yesterday with inflation printing below expectations and unemployment rising. Oil prices fell yesterday with US crude oil down a third straight day, amid rising stockpiles and a tepid picture for economic growth. West Texas Intermediate (WTI) crude lost 39 cents to finish at $96.38 a barrel. The US oil, which touched a four-month low of $95.95 last week, has regained some ground on expectations demand would pick up as its refineries emerge from their maintenance season. Brent crude for December gave up $1.02 to $108.84 a barrel. The fall in Brent came as worries eased over new cutoffs of Libyan oil, a valuable light grade of crude used in European refiners. An early survey on OPEC production for October showed a minor increase in overall output which also weighed on prices.

Friday morning stronger than expected Chinese manufacturing data helped give energy commodities a leg up. China’s manufacturing activity expanded at its strongest pace in 18 months in October, the government announced Friday, another sign of increasing strength in the world’s second-largest economy. The official purchasing managers’ index (PMI) advanced to 51.4 last month from 51.1 in September, the National Bureau of Statistics (NBS) reported. China’s economic growth in the third quarter of this year accelerated to 7.8 percent year-on-year, snapping two quarters of slowing expansion, according to official data released last month.

The official data was supported by the private HSBC report this morning, which is considered a more reliable report. China’s HSBC manufacturing PMI climbed to 50.9 in October from 50.2 in September. This was a bit higher than the 50.7 expected by economists. The key points from the report showed that Output growth picked up to six-month high and both new orders and new export orders increase at faster rates. The data showed the fastest accumulation of work-in-hand since March 2011.

Increased manufacturing by the world’s second largest consumer of energy products is supporting market demand this morning.

Brent oil slid hard on Thursday dropping after news from trading sources said that Libya’s Mellitah terminal and Hariga port would soon resume exports and production from Sharara oil field, which were shut following strikes and protests by militias and minorities. Libyan Prime Minister Ali Zeidan said that oil exports from the 110,000 bpd Hariga port would resume on Sunday or Monday. Libya, which produces around 250,000-300,000bpd of crude, uses 100,000bpd for domestic consumption and the rest for export. Brent’s value went up after a fall in exports from the OPEC producer to around 90,000 barrels per day (bpd) from the two offshore oil platforms, Al Jurf and Bouri, or less than ten percent of its 1.25 million bpd capacity.

Natural gas tumbled to trade at 3.567 down by 6 pips this morning. Yesterday’s EIA inventory showed larger stocks than expected. The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended October 25 rose by 38 billion cubic feet, broadly in line with forecasts for an increase of 36 billion cubic feet. Inventories rose by 66 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a build of 57 billion cubic feet. Gas should head for a bottom around the 3.35 price point between seasons.