London: Oil prices slipped on Tuesday, weighed down by concerns over the outlook for the global economy, the Greek debt crisis and a stronger dollar.
China, the world’s second biggest oil consumer and a major consumer of commodities, is experiencing a slowdown in economic growth, sounding warning bells across financial markets.
Ratings agency Moody’s said on Tuesday that China’s local government debt may be 3.5 trillion yuan ($540 billion) larger than estimated, which could make banks liable for deeper losses and threaten their credit worthiness.
The news follows data last week showing China’s factory sector grew at its slowest pace in 28 months in June, fuelling fears of a big drop in demand, which could impact suppliers worldwide.
ICE Brent crude fell 28 cents to $111.11 a barrel by 1:52pm, and was headed for its third straight session of losses. US crude was at $94.80, down 14 cents.
“It looks as if the Chinese economy is slowing,” said Christophe Barret, global oil analyst at Credit Agricole. “Almost all the economic data is weak and demand data is also poor. China is always a concern for oil markets because the country is such a big consumer.”
China’s fledgling services sector also fell slightly in June but still pointed to a solid business expansion as new order growth quickened to an eight-month high, a report on Tuesday showed.
In Europe, the market’s initial optimism over euro zone policymakers’ approval of an emergency bailout for Greece was tempered by Standard & Poor’s negative view of a planned second Greek bailout package.
Edward Meir, senior commodities analyst at US brokers MF Global, also highlighted deteriorating macro-economic data from the euro zone and China.
“The net impact on commodities will be somewhat more bearish given the importance of the Chinese as a key commodity price driver,” Meir said.
Oil traders are also keeping a wary eye on the United States, where Treasury Secretary Timothy Geithner has warned of huge risks if Congress fails to raise the $14.3 trillion debt ceiling by 2 August, potentially triggering a default.
Participants will be closely watching the key US non-farm payrolls report on Friday for signs economic growth in the world’s top oil consumer has regained traction.
Data on US durable goods and factory orders for May due at 7:30pm, will also give an indication of the state of demand in the world’s biggest oil consumer.
Weekly US oil inventory data from industry group the American Petroleum Institute and the government’s Department of Energy will be delayed by a day to Wednesday and Thursday, respectively, due to Monday’s Independence Day holiday.
Oil prices were also depressed by a stronger dollar, which rose 0.3 percent against a basket of currencies, making dollar-denominated oil more expensive when purchased in foreign currencies.
According to technical price charts, Brent crude needs to clear resistance at $113 a barrel before developing a decent rally towards a short-term resistance target at $121.47, while US crude is expected to rise to $98.13 a barrel, said Reuters market analyst Wang Tao.