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Oil falls below $75 on China demand doubts

Oil falls below $75 on China demand doubts
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First Published: Thu, Jul 01 2010. 02 31 PM IST
Updated: Thu, Jul 01 2010. 02 31 PM IST
London: Oil fell below $75 a barrel on Thursday, beginning the second half of the year on a weak note after falling nearly 5% in the first half, as signs of slowing economic growth in China fuelled energy demand doubts.
The pace of manufacturing growth in the world’s second largest oil consumer slowed in June as government steps to cool the property market and curb bank lending combined with a faltering global recovery.
US crude for August delivery fell $1.01 to $74.62 a barrel by 2:27pm, declining for the fourth straight session and extending the 10 percent slide of the second quarter, the first quarterly drop since 2008.
ICE Brent fell 1.07 on Thursday to $73.94.
“I think oil is reflecting general negative commodity market sentiment after weaker-than-expected China PMI data overnight,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. “Weaker equity markets are also weighing on sentiment,” he added.
The China data, and Moody’s decision on Wednesday to put Spain’s credit ratings under review, got broader markets off to a weak start for the new quarter. Japanese stocks slid to a seven-month low, China’s to a 15-month trough and the dollar rising 0.2 percent against a basket of currencies.
China’s official purchasing managers’ index (PMI) fell to a weaker-than-expected 52.1 in June, the lowest since February, from 53.9 in May. The indicator remained above the 50 threshold that indicates an expansion.
Adding to negative sentiment on demand, US gasoline stockpiles posted surprise gains last week, government statistics showed on Wednesday, raising doubts about the speed of consumption recovery in the world’s top consumer.
Crude stockpiles fell 2 million barrels in the week to 25 June, compared to expectations for a decline of 900,000 barrels. Cushing, Oklahoma, crude supplies shed 795,000 barrels to 36 million barrels.
The recent slip from record high storage at the Cushing hub has helped narrow the price spread between the front-month and near-month US crude contracts.
The spread narrowed to 55 cents on Thursday, from $1.27 on Wednesday, which could signal an improvement in near-term demand.
Traders were also looking to the nation’s weekly jobless claims later on Thursday and June’s employment report on Friday for further indications about the direction of the economy in the world’s largest fuel consumer.
“The data in the next two days is particularly important and has the potential to move oil prices,” said David Moore, an analyst at the Commonwealth Bank of Australia.
Hurricane Alex drenched the Texas-Mexico border on Thursday as the powerful storm hit Mexico’s Gulf coast, spawning tornadoes and flooding towns, but it spared US oil wells.
“Hurricane Alex made landfall and didn’t have an impact on oil production. I think some people are taking profits after prices rose on possible fears it would hit output,” Fritsch said.
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First Published: Thu, Jul 01 2010. 02 31 PM IST
More Topics: Oil | Crude | Fuel | China | Economy |