Oil prices rebounded today after falling sharply on China’s rate hike.
Equities as well as oil and metal prices slipped yesterday in reaction to China’s surprise decision to raise its one year lending and deposit rates by 0.25%. This was the first change in China’s interest rates since it slashed them 0.27% in October 2008 to help the economy withstand the global economic downturn.
The move is seen as part of China’s effort to combat the rising inflation, which is firmly on track to eclipse the government’s full year target of 3%.
China is the world’s second largest energy consumer and the leading consumer of the main base metals.
The rate hike is likely to curb economic growth, resulting in lower demand for oil and metals.
Oil prices recouped some of yesterday’s losses this morning after the negative trend in stock markets was reversed.
Futures for the Dow Jones and S&P 500 indexes in the US climbed 0.5% ahead of today’s earnings reports from several heavyweights including Boeing (NYSE:BA), Delta Airlines (NYSE:DAL), US Airways (NYSE:LCC), Morgan Stanley (NYSE:MS), Wells Fargo (NYSE:WFC) and eBay (NASDAQ:EBAY).
The UK’s FTSE 100 recovered from a negative start, rising 0.4% by early afternoon.
Oil futures usually track changes in share prices, which serve as an indicator of the strength of the economy and the outlook for energy demand.
The prices were also aided by today’s decline in the US dollar index, which measures the greenback’s strength against a basket of six other major currencies. The index declined 0.2% as the US dollar weakened, lifting the demand for crude by making it cheaper for holders of other currencies.
December Brent Crude advanced to US$91.94/barrel on the ICE Exchange, while Brent for January delivery rose to US$82.34/barrel.
US light, sweet crude for December delivery, which is the most actively traded contract on the New York Mercantile Exchange (NYMEX) rose to US$80.78/barrel, while the January contract reached US$81.51/barrel.
Cairn Energy (LON:CNE) and Tullow Oil (LON:TLW) posted small losses, as did BP (LON:BP), while fellow supermajor Shell (LON:RDSB) was unmoved.
BG Group (LON:BG) declined 1.4%.
Oil and gas engineering firms Amec (LON:AMEC) and Petrofac (LON:PFC) declined marginally.
Most midcaps followed the trend. Dragon Oil (LON:DGO) and Salamander Energy (LON:SMDR) declined 2.5%. Soco International (LON:SIA) dropped 1.5%. Heritage Oil (LON:HOIL) and Melrose Resources (LON:MRS) were sitting just below the opening level.
Dana Petroleum (LON:DNX) was flat and JKX Oil & Gas (LON:JKX) rose marginally.
Wellstream Holdings (LON:WSM) declined 1%, while another services company Wood Group (LON:WG) posted a small loss.
Africa and the FSU operating explorer and producer Victoria Oil & Gas (LON:VOG) and Ukraine focused Regal Petroleum (LON:RPT) were among the top performing small caps, rallying 19.5% and 14% respectively.
European focused oil and gas exploration and production company Ascent Resources (LON:AST) also did well, climbing 5%.