Brent below $114 as Europe manufacturing slows

German manufacturing activity in August grew at its slowest pace in almost two years due to a sharp drop in new orders, while French manufacturing activity contracted for the first time since July 2009.

“The main thing putting pressure on oil this morning is the really bad PMI (Purchasing Managers’ Index) readings in Europe," Olivier Jakob from Petromatrix said. “We have an contraction overall in Europe in the PMIs; this is confirmation that the economy is slowing down."

Front-month Brent touched $115.27 a barrel, the highest intraday price since 3 August, before falling to a low of $113.61. By 3:31pm, October Brent was at $113.92, down 93 cents. US crude benchmark West Texas Intermediate (WTI) fell 34 cents to $88.47.

The European figures balanced data earlier in the day showing China’s manufacturing had rebounded in August, which raised hopes growth in the world’s largest energy consumer could offset slowing industrialised economies.

China’s PMI rose to 50.9 in August from a 28-month low of 50.7 in July, official data showed, while upbeat sentiment across financial markets lifted Asian stocks on hopes the US Federal Reserve would intervene to support the economy.

“Generally China has surprised on the upside and we expect it to continue to do so, although it will continue to moderate growth," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

“We acknowledge the difficulties for China’s policymakers to deal with inflation, but we still think that the economy will be stronger than the market is fearing."

China Premier Wen Jiabao signalled on Thursday that controlling inflation would remain a top priority in coming months even as the world economy wobbles.

Concern about hurricane-related disruptions to supply in the US Gulf of Mexico also supported oil prices.

Katia strengthened into a hurricane over the Atlantic on Wednesday, while another mass of thunderstorms that could become a named storm this week triggered evacuations of some oil workers from the Gulf of Mexico.

BP began to evacuate more than 500 non-essential workers from four platforms in the region, home to large volumes of crude and natural gas production.

Brent is on track for eight straight sessions of gains following a sharp drop of 2.8 million barrels in US gasoline stockpiles last week and as North Sea production issues keep European crude supplies tight.

EYES ON JOBS

Prices rose on Wednesday after a report showed the US private sector added 91,000 jobs in August, while an index of factory activity in the US Midwest in August and US July factory orders were better than expected.

Still, the data continued to portray an economy struggling to mount a sustained recovery. As such, it further raised expectations the Fed would adopt new measures to shore up the economy, supporting gains on Wall Street.

US President Barack Obama on Wednesday agreed to unveil new jobs proposals in an address to Congress on 8 September.

Investors will be looking at Friday’s US non-farm payrolls report for August as a guide for direction in the oil market. Payrolls are expected to have increased by 75,000 jobs, according to a Reuters survey, slowing from July’s 117,000 rise.

“The skew is more towards the positive. Any surprise on the upside will benefit all risk assets," Friesen said.

Underscoring fears about a global slowdown, Brazil surprised markets by cutting its benchmark interest rate to 12% from 12.5% and expressed particular concern about the pace of growth in mature economies.

Lower interest rates in fast-growing economies such as Brazil are also positive for oil demand growth.

“The emerging markets have likely stopped their tightening cycle," Friesen said. “In the current environment, investors are still seeing commodities as safe."

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