Crude Oil

November crude oil futures traded at $77.81 a barrel on Thursday morning, representing a 3.5% gain on the week. Speculation about a revival in QE has helped reinvigorate a rally in many commodities this week. The expectation of additional QE weakened the US dollar, which in turn rendered commodities, priced in US dollars, relatively cheaper in foreign currency terms. Falling energy stockpiles and evidence of an expansion in Chinese manufacturing sector also contributed the weekly rally in crude oil. On Wednesday a report from the US government's Energy Department showed that crude oil inventories fell by 500,000 barrels in the week ending 24 September. The size of the drawdown was larger than the estimate shown in a survey by Dow Jones Newswires. Meanwhile, declines in gasoline and distillates confounded analysts who were expecting an increase. Gasoline stockpiles dropped by 3.47 million barrels to 222.6 million last week, and stocks of distillates, which include heating oil and diesel, fell by 1.27 million barrels to 173.6 million. A separate report compiled by HSBC Holdings showed that manufacturing in China, the world's fastest-growing oil-consuming country, accelerated for a second month in September. China's Purchasing Managers Index for the manufacturing sector rose to 52.9, the highest in five months. The data was seasonally adjusted and readings above 50 indicate an expansion. Going forwards, crude oil investors should – as always – be very careful about where they place their stop losses, as volatility in the commodity is poised to increase. Although the reintroduction of QE could provide a bullish case for crude oil, China's determination to prevent a property bubble and concerns about the European economy, especially the peripheral region, will weigh on sentiment.