London: Oil fell towards $73 on Tuesday, erasing earlier gains, after industry data showed Chinese growth had slowed, adding to concerns about global economic recovery.
China’s factories scaled back production last month and slowed the pace of hiring, the purchasing managers’ index (PMI) for May showed on Tuesday.
US crude for July delivery lost 94 cents to $73.03 per barrel by 12:58pm, after trading above $75 earlier. Prices have dropped 15 percent from an early-May peak.
Trade was thin and there was no settlement price on Monday because of the Memorial Day holiday in the United States. The New York Mercantile Exchange will combine Monday’s and Tuesday’s trading sessions into one.
ICE Brent crude for July fell more than $1 to a low of $73.30, down $1.35, before recovering a little to around $73.50 by 12:58pm. It touched $68.15 a week ago, the lowest intraday price for a front-month contract since 5 February.
China’s PMI, an indicator of factory activity, compiled by the China Federation of Logistics and Purchasing, fell to 53.9 in May from 55.7 in April, close to analysts forecasts of 54.0.
However, it stood above the threshold of 50 that demarcates expansion from contraction for the 15th consecutive month.
“The Chinese data was not as good as expected and signals slowing growth later this year,” said Eugen Weinberg, commodities analyst at Commerzbank in Frankfurt.
“Yesterday’s holiday is also having a bit of an impact on the speed of the move as traders are closing off positions that they could not trade out of over the long weekend,” he added.
US crude posted its biggest monthly loss since 2008 in May, losing more than 13% after the European economic crisis raised the prospect of reduced fuel demand.
Euro zone economic sentiment unexpectedly fell last month, data showed on Monday, an indication that the region’s debt crisis has begun affecting the real economy.
The euro and Asian stocks slid on Tuesday with creeping suspicion that a peak in the recovery has passed and slowing growth in China and Europe in the second half of the year will be obstacles to risky trades.
The relative strength index (RSI) for US crude, a chart indicator based on trading volumes that signals whether a price drop or increase has gone too far, has now returned to average levels, suggesting US crude is no longer oversold.
Analysts say future oil supply could also be impacted by decisions taken to restrict offshore drilling in the wake of the giant slick from BP’s blown-out Gulf of Mexico well, the worst oil spill in US history.
The oil spill may not be shut off until August, US government and BP officials say, as the company begins preparations on a new but uncertain attempt to contain the leaking crude.
The environmental catastrophe led the US government to stop issuing new exploratory drilling permits in deep water for six months and declare a ban that effectively idles operations of 33 deepwater exploratory rigs for the same period.