A Review of the Nigerian Energy Industry

Stronger dollar weighs on prices

US dollar on a scale03 November 2014 – Brent crude inched down on Monday, moving further away from $86 a barrel as mixed Chinese data and a strong dollar pressured prices.

Although growth in China’s vast factory sector rose to a three-month high in October as smaller firms saw more orders, the numbers still pointed to a sluggish economy that is losing momentum.

The US dollar touched seven-year peaks versus the yen on Monday, dragging on oil prices as it makes the commodity more expensive for buyers holding other currencies.

Brent crude for December delivery slipped 1 cent to $85.85 a barrel early on Monday. The oil benchmark has fallen more than 9% in October.

US crude fell 18 cents to $80.36 per barrel after losing 11% last month.

“We are just seeing a little bit of a bounce in prices after some softness over the weekend. But the big driver that we are seeing is the strength of the US dollar. That is something that would weigh on the potential upside of the oil price,” said Ben Le Brun at OptionsXpress.

“China data will certainly be a driver. We might see a little bit of volatility going into the afternoon session in Asia today.”

The final HSBC/Markit Manufacturing Purchasing Managers’ Index (PMI) edged up to 50.4 in October, up from the September’s reading of 50.2, but unchanged from a preliminary reading.

While the headline number looked slightly better, growth rates slowed in several key areas heading into the fourth quarter, putting the government’s full-year growth target of 7.5% further in doubt.

A similar survey by China’s National Bureau of Statistic(NBS) released on Saturday showed factory activity unexpectedly fell to a five-month low last month as firms struggled with slowing orders and rising borrowing costs.

The official Purchasing Managers’ Index (PMI) eased to 50.8 in October from September’s 51.1, the National Bureau of Statistics said on Saturday, but was above the 50-point level that separates growth from contraction on a monthly basis.

The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI which concentrates more on smaller manufacturers in the private sector.

Separately, an official reading on the services industry earlier on Monday showed growth in that sector hit a nine-month low in October as the cooling property sector weighed on demand.

As investors grappled with an overall brittle growth in China, oil supply from Opec in 2015 is expected to be similar to this year, its secretary general said last week, adding to indications the exporter group is in no hurry to cut output.

Iraq has managed to restore oil exports from its southern Basra terminals to 2.4 million barrels per day on Sunday after bad weather had reduced its exports to 1.44 million bpd, a shipping source said.

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