Singapore: Brent slipped more than $1 to below $112 a barrel on Friday after China’s factory output grew at the slowest pace in 28 months, raising concerns of fuel demand weakening in the world’s second-largest oil consumer.
China’s output data was slightly less than forecast, as weaker global demand and tight monetary policy at home hurt production, but it was still above the threshold of 50 that demarcates expansion from contraction.
ICE Brent crude fell $1.15 to $111.33 a barrel by 1:10pm, Brent is on track to post a rise this week after two straight weekly losses. U.S. crude <CLc1> was at $94.52 a barrel, down 90 cents.
“The data is just showing a recurring theme in China,” CMC Markets analyst Ben Le Brun said. “Manufacturing continues to slow but it is still growing above the 50 threshold.”
China’s official purchasing managers’ index (PMI) fell to 50.9 in June from 52 in May, weaker than market expectations of 51.3, based on a Reuters poll.
Global investors are worried about any signs of a slowdown in the country driving global growth as the US economic recovery loses momentum and Europe struggles with a sovereign debt crisis. Most economists believe China, underpinned by its relentless urbanisation, is in no danger of a hard landing.
Investors are also concerned about global oil consumption as the International Energy Agency (IEA) last week surprised markets by releasing oil and fuel stocks from reserves.
IEA STOCKS RELEASE
Investors are also watching how well the market can absorb a release of emergency oil stocks by the International Energy Agency as Germany, the Netherlands and the United States sought bids for their crude supplies in tenders.
“We did experience that low point after the announcement of the stocks release, but 60 million barrels is not huge in terms of world consumption,” Le Brun said.
“Analysts have started talking about oil (WTI) at $100 again and it’s very interesting to see prices at just under the 200-day average at the moment.”
WTI prices could hit $100 within this month if they go through a key resistance at $97.27 a barrel, Le Brun said.
The International Energy Agency has sent conflicting signals to the market this week. Some traders and analysts said the agency’s planned 60 million barrel crude and oil product release has been badly coordinated outside the United States.
Opec’s Secretary General Abdullah al-Badri on Monday demanded an immediate halt to the IEA action designed to force down crude prices.
“With that in mind, it’s possible that Opec may cut some output,” Le Brun said. “This remains to be seen.”
Opec oil output is expected to remain lower in June than before the conflict in Libya largely shut down its oil industry, extra supply from Saudi Arabia and other Gulf members.
Supply from all 12 members of the Organization of the Petroleum Exporting Countries is expected to average 29.45 million barrels per day (bpd) this month, up from a revised 29.1 million bpd in May, a Reuters survey showed.
But output may be lower than expectations. Industry sources said earlier in June that Saudi Arabia would boost production to almost 10 million bpd this month, but analysts said there was no sign yet of that much demand in the market.
Markets in the United States are shut on Monday for a national holiday.
“There is plenty of economic data ahead of the U.S. holiday on Monday. If they are positive, we would see another uptick in oil prices,” Le Brun said.