Crude drops below $90 on signs of slowing Chinese growth

China Crude OilWest Texas Intermediate crude fell below $90 a barrel for the first time in 2013 as service industries in China expanded at the weakest pace in five months, adding to speculation that demand growth is slowing.

Prices declined for the seventh time in nine days as the expansion of the non-manufacturing industry in China, the world’s largest oil-consuming country after the U.S., was the slowest since September. Measures released March 1 pointed to manufacturing growth cooling. Money managers cut bets on rising oil prices in the week ended Feb. 26, according to data from the Commodity Futures Trading Commission.

Crude also dropped as gasoline futures for April delivery fell as much as 1.6 percent to $3.0796 a gallon as U.S. refiners wrapped up seasonal maintenance and prepared to restart plants. Photographer: Dado Galdieri/Bloomberg

“We have disappointing economic news out of China,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. He said $90 “is a critical level and we are poised to fall rather quickly down to $88.”

WTI for April delivery slid $1.03, or 1.1 percent, to $89.65 a barrel at 1:38 p.m. on the New York Mercantile Exchange after falling to $89.33, the lowest intraday level since Dec. 26. Trading was 13 percent below the 100-day average for the time of day.

WTI has dropped more than 9 percent from this year’s high of $98.24 on Jan. 30 as weaker demand and rising production pushed U.S. inventories to 377.5 million barrels in the week ended Feb. 22, the most since July 20.

‘Further Worries’

The International Energy Agency on Feb. 13 trimmed forecasts for 2013 global oil demand for the first time in three months as constrained economic growth undermines fuel consumption. The Paris-based agency reduced its demand forecast by 90,000 barrels a day.

“China brought further demand worries,” said Bill Baruch, a senior market strategist at in Chicago. “We broke a key technical level at $90 and the momentum is on the down side.”

Brent for April settlement dropped 70 cents to $109.70 a barrel on the London-based ICE Futures Europe exchange. Volume was 13 percent above the 100-day average for Brent. Brent’s premium over WTI widened for a third day to as much as $20.36 as the entire Brent crude pipeline system remains shut for a third day after an oil leak was discovered on one of the platforms.

Index Declines

China’s non-manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said over the weekend. The index’s reading has been above 50, indicating expansion, for at least two years.

A gauge of new orders declined 1.9 points from January to 51.8, the weakest reading since October. The federation’s manufacturing PMI released March 1 dropped to 50.1, the weakest level in five months.

“If China is slowing, it’s not going to be good for the oil market,” said Gene McGillian, an analyst and broker at Tradition Energy in StamfordConnecticut. “It’s a primary driver on the demand side of the equation. In the near term, all the pointers seem to be pointing toward weakness in the market.”

China accounted for 11 percent of the world’s oil consumption in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy. The U.S. used 21 percent.

“We are still waiting for strong economic growth and we don’t have signs of it,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Gasoline Futures

Crude also dropped as gasoline futures for April delivery fell as much as 1.6 percent as U.S. refiners wrapped up seasonal maintenance and prepared to restart plants.

Money managers’ net-long positions in WTI for the week ended Feb. 26 fell by 32,790 futures and options combined, or 16 percent, the most since Dec. 11, to 175,211, the CFTC data showed March 1. The same trend occurred for ICE Brent, with hedge funds and other money managers cutting bullish bets by the most in more than 18 months, to a net 159,816 lots, the London- based exchange reported today.

Brent’s premium over WTI widened as production from the 27 North Sea oil fields that make up the Brent system is still shut as a result of the leak that was discovered March 2 on the Cormorant Alpha platform, according to the operator, Abu Dhabi National Energy Co. (TAQA)PJSC, known as Taqa.

The pipeline normally carries 90,000 barrels of oil a day, though 10,000 barrels a day was already offline following a similar incident at the same platform on Jan. 14.

“Brent is getting some support from the pipeline system that’s been shuttered,” said McGillian.

Electronic trading volume on the Nymex was 303,167 contracts as of 1:38 p.m. It totaled 524,395 contracts on March 1, 1.6 percent below the three-month average. Open interest was a record high 1.672 million contracts, according to CME Group data.

Source: Bloomberg – “Crude Drops Below $90 on Signs of Slowing Chinese Growth”

Categories: Mining & Energy

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