London: Oil prices fell on Thursday as weak economic data from China, the world’s second-biggest oil user, outweighed support from market expectations that the sovereign debt crises on both sides of the Atlantic could somehow be contained.
Comment to Reuters from IEA director Nobuo Tanaka that there was unlikely to be another release for now from emergency stockpiles was already factored in, traders said.
But his prediction that leading Opec exporter Saudi Arabia would increase output further added to bearish sentiment.
Brent was 73 cents lower at $117.42, off a session low of $116.62, while US crude was 42 cents lower at $97.98 by 05:15 pm, up from a low of $97.20.
“The IEA news is not a surprise,” said Neil Atkinson of Datamonitor. The European debt crisis, meanwhile, had limited direct bearing on demand as consumption growth is concentrated in emerging economies, but could have a knock-on effect, he added.
“Export markets would be affected if it all goes pear-shaped. It could take a little bit of the heat out of the demand side of the balance, but that remains to be seen.”
As EU leaders battled to contain the Greek debt crisis, German Chancellor Angela Merkel and French president Nicolas Sarkozy crafted a common position on a second bailout in late-night talks in Berlin, sources in both governments said.
EU sources said further that the European Central Bank was willing to let Greece slip into temporary default as part of a response that would involve a bond buyback but no new tax on banks.
During the Asian trading day, HSBC flash PMI showed China’s factory sector had shrunk for the first time in a year.
The earliest available indicator of industrial activity in China, it fell to 48.9 in July, its lowest since March 2009, as monetary policy tightening and slack global demand weighed on the economy. The index was last below 50 in July 2010.
Any sign of a slowdown in China is particularly closely watched by commodity markets, which are focused on Asia and particularly China as the prime source of future demand.
In the world’s biggest oil consumer, the United States, the White House signalled it could support a short-term increase in the US borrowing limit for “a few days” if lawmakers agreed to a broad deficit reduction deal but needed more time to pass it.
A shift from President Barack Obama’s previous position, the mooted plan reflects the growing political reality that time is short for Congress to pass a massive deficit-cutting deal before the United States runs out of money on 2 August.
The United States is especially nervous about the impact of high oil prices on its fragile economy in the run-up to an election year and provided half of a nearly 60 million barrel release from consumer country reserves announced on 23 June.
The International Energy Agency gave itself 30 days -- a deadline that expires at the end of this week -- to review the impact of that release.
The IEA’s emergency reserves release followed the failure of Opec in June to agree on a Saudi-led proposal to increase supplies.
In defiance of the Organization of the Petroleum Exporting Countries as a whole, Saudi Arabia unilaterally increased its supplies. They climbed to around 9.8 million bpd in June, a senior Opec delegate said, and Tanaka predicted they would rise to 10 million bpd in July.
US inventories fell by more than expected last week, according to data released on Wednesday.
But analysts said stocks were still comfortable and the release of high quality crude following last month’s reserves announcement had helped to redress the market balance and narrow a price gap between cheaper, difficult-to-refine grades and higher quality oil.
Overall the price of Brent is still around $3 higher than before the IEA’s 23 June announcement and around $10 shy of a high for the year of more than $127 touched in April.