London: Oil fell below $112 a barrel on Friday after a weak reading of industrial growth in China sparked worries about demand growth from the world’s number two oil consumer.
China’s industrial production in April grew at its slowest pace in nearly three years, which along with poor trade numbers on Thursday, suggest the world’s No. 2 economy continues to slow down after a weak first-quarter performance.
Markets were also rattled by an unexpected $2 billion trading loss at Wall Street giant JP Morgan, which pushed jittery investors away from risky assets.
“The news out of JP Morgan last night started global markets on the weak side while Chinese numbers were not that good,” said Olivier Jakob from Zug-headquartered Petromatrix.
By 5:10pm, Brent June futures lost 88 cents to $111.85 a barrel. The benchmark, which fell to a three-month low on Monday, is headed for its second week of losses.
The US light sweet June contract dropped $1.13 to $95.95 a barrel, resuming its downturn after ending a six-day slide on Thursday. US crude is also on track for a second straight week of decline after touching its lowest level since mid-December on Wednesday.
China’s implied oil demand fell in April to its lowest in six months and showed the first year-on-year decline in at least three years, as refineries scaled back crude runs to undergo maintenance.
Implied oil demand from the world’s number two oil consumer fell 0.5% in April from a year earlier to 9.31 million barrels per day (bpd), the lowest since October 2011, Reuters calculations based on preliminary government data showed on Friday.
The data highlights the potential impact on China from the ongoing crisis in the euro zone, where Spain and Greece continue to fight mounting debt problems.
Global demand growth this year will remain broadly unchanged, the International Energy Agency (IEA) said in its monthly report, raising it by just 20,000 bpd from its previous report to 790,000 bpd.
The agency expects prices to remain high due to nuclera tensions between the West and Iran, despite a dramatic improvement in world supply resulting in a big build in stocks.
Investors shrugged off data earlier in the day that showed inflation in China, the world’s second biggest oil consumer, continued to moderate in April and potentially gave Beijing more scope to loosen policy to support a slowing economy.
The decline in risk assets was broad-based, with Asian shares also slipping amid the deepening political upheaval in Greece and the weak Chinese industrial data.
An improved global supply scenario is also weighing on oil prices. Brent hit highs above $128 in March amid fears about supply disruptions from key producer Iran following Western sanctions.
“We haven’t been seeing an escalation with regards to tensions in Iran so the premium that was built into the price might just be starting to come off,” said Ben Le Brun, market analyst at OptionsXpress in Sydney.
The Organization of the Petroleum Exporting Countries pumped 1.62 million barrels per day above its supply target in April, filling gaps caused by a large number of supply outages globally.
But analysts say Opec could trim output in response to swelling stockpiles.
“The unusually large global inventory builds in the first half of 2012 will lead to a prolonged slump in the need for Opec oil, requiring substantial cuts in Opec’s output,” Leo Drollas, chief economist for Centre for Global Energy Studies told an industry conference in Singapore.
“These will come about, but not quickly enough to prevent the price of oil from sagging.”