LONDON: Brent oil fell $1 to a near five-month low below $105 a barrel yesterday on poor manufacturing data from China and Europe, while investors awaited US inventory data to help assess demand in the world’s top oil consumer.
Crude prices on both sides of the Atlantic tumbled nearly two percent on Tuesday after the data, which was coupled with news that Libyan rebels could re-open vital oil ports within days.
Brent crude oil was down 98 cents to $104.64 a barrel by 1448 GMT after reaching its lowest since November 8. US crude oil shed 40 cents to reach $99.34 a barrel, after dropping 1.8 percent in the previous session.
In a sign of Brent weakness, the May contract briefly fell to parity with the June contract, threatening to move into a market structure known as contango, which signals ample supplies and weak demand.
Contango has been a rare occurrence in the Brent market over the past three years as supply outages from Libya and other countries have tended to keep the contract closest to delivery above those for delivery in the future.
The spread between Brent and US oil, or WTI, has also contracted to about $5.38, its narrowest since October.
“There are more bearish macroeconomic factors weighing on sentiment. We started the week with weaker data from China ... so one of the key contributors to global oil demand growth in recent years is going through a soft patch,” said Harry Tchilinguirian, an analyst at BNP Paribas.
“At the same time ... people are looking at the US Federal Reserve tapering continuing, which suggests a stronger dollar environment, and that is bearish for commodities.”
Commodities such as crude oil are priced in dollars, which means a stronger greenback makes them more expensive to importers.
Surveys showing that factories across Europe eased back on the throttle in March and that China’s vast manufacturing industry contracted for a third straight month have raised expectations that oil demand could falter.
Tuesday’s slump was also attributed to news that a rebel group in eastern Libya had agreed with the government to end its seizure of oil ports, raising hopes for an end to an eight-month stalemate that has dried up state income.
Markets are now keenly awaiting oil inventory data due yesterday from the US Energy Information Administration (EIA) for more trading cues.
Data released on Tuesday by the American Petroleum Institute (API) showed crude stocks had dropped 5.8 million barrels in the week to March 28 to 373.5 million barrels. The numbers confounded analysts’ forecasts for an increase of 1.1 million barrels but failed to provide support even to US oil.
“If the upcoming EIA weekly release were to reveal lower crude inventories consistent with the API data, we are likely to expect prices to retrace upwards,” Phillips Futures analyst Tan Chee Tat said in a note.
Adding to the wider concerns about demand, easing political concerns over Ukraine have sapped some support for Brent, the international benchmark.
While tensions between Russia and the West persist, analysts and traders expect the crisis to have less impact on oil supplies than on natural gas.
Estimates for a drop in supply from the Organization of the Petroleum Exporting Countries (Opec) could help underpin Brent, however.
Reuters
