SINGAPORE, Mar 1: Brent crude slipped toward $111 a barrel on Friday, weighed down by concerns that oil demand will be hurt if China’s economy continues to sputter, the euro zone remains weak and automatic spending cuts are enacted in the United States.
China’s official Purchasing Managers’ Index (PMI) was 50.1 in February, the government said on Friday, missing market expectations for a reading of 50.2 as overseas demand for Chinese goods remained tepid. It was the lowest reading for the index since September 2012.
‘While comfort can be sought from the fact that the Chinese economy remains in expansion territory, the dip from prior PMI readings does illustrate that the recovery is far from linear and that there are still a few bumps in the road,’ said Tim Waterer, senior trader at Sydney-based CMC Markets.
The data, released by the National Bureau of Statistics, showed that new orders – particularly new export orders – were weaker than in January.
Brent crude for April delivery eased 31 cents to $111.07 a barrel by 0446 GMT, after ending the previous session at the lowest close in six weeks. That capped a month-end sell-off that has seen prices drop by almost $8 in two weeks.
U.S. Oil fell 16 cents to $91.89, adding to a drop in February that snapped three straight monthly gains. The front-month contract is just off its $91.43 low for the year, hit earlier in the Asian day.
‘The problem at the moment, is that while we are seeing some signs of the economy clawing its way out of the basement, this is still not translating into demand for oil, whether in China or the U.S.,’ said Carl Larry, president of Houston-based Oil Outlooks and Opinions.
Further pressure on prices has come from the political gridlock between the White House and Republicans who have struggled to reach a deal to avert $85 billion in cuts across the federal government agencies.
The International Monetary Fund (IMF) said on Thursday it would shave at least 0.5 percentage points off its 2013 U.S. Economic growth forecast of 2 percent if the cuts are fully implemented.
‘It is frustrating for all of us trading the market, and that is just going to weigh on prices in the short term at least,’ said Larry.
‘We have an overhang of oil in the market at the moment as well, so on a fundamental level the market is weak, but that could change as we look into the next quarter.’
U.S. Crude inventories rose 1.13 million barrels last week as imports increased according to weekly government data from the Energy Information Administration. (AGENCIES)
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