Wednesday, September 23, 2015

Oil prices fall on downbeat Chinese manufacturing data

Oil prices slid on Wednesday after disappointing Chinese manufacturing data added to mounting concerns about the economy of the world’s second-biggest crude buyer.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX5, +0.80%  traded at $46.12 a barrel, down $0.24 in the Globex electronic session. November Brent crude LCOX5, +0.45%  on London’s ICE Futures exchange fell $0.32 to $48.76 a barrel.

Nymex crude prices are down roughly 7% month-to-date while Brent is down 9.4% in the same period.

An early reading from Caixin Media Co. and research firm Markit Ltd. showed Chinese manufacturing activity fell to a six-and-a-half year low of 47.0 in September from a final reading of 47.3 in August.

A reading above 50 indicates expansion from the previous month, while a reading below that indicates contraction.

Asian markets reacted negatively to the data. The Hang Seng Index HSI, -2.26%   was down 2.1% while the Shanghai Composite Index SHCOMP, -2.19%  lost 1.3%. Australia’s S&P ASX 200 XJO, -2.07%  fell 1.5% and South Korea’s Kospi SEU, -1.89%  slipped 1%.
Capital Economics said that while China’s weaker-than-expected manufacturing numbers added to worries over Chinese growth, broader economic indicators don’t point to a deepening economic crisis just yet. “With most of the key leading indicators such as fiscal spending and credit growth now looking supportive, we continue to expect a cyclical recovery in economic activity over the coming quarters,” the research firm said.

Oil prices, along with the overall commodities sector, have been increasingly sensitive to any negative news on China’s economy in recent weeks, and market sentiment has capped price gains.

“The data underscores the possibility of a hard landing in China, but the recent declines in U.S. crude supply are lending some support to market,” said Virendra Chauhan, an oil analyst at Energy Aspects.

Late Tuesday, the American Petroleum Institute’s latest report showed crude-oil stocks in the U.S. declined 3.7 million barrels for the week ended September 18. While this is sharper than expected and is temporarily supportive for oil prices, traders are monitoring the official Department of Energy data slated for release later Wednesday.

Estimates from 13 analysts surveyed by the Wall Street Journal showed that U.S. oil inventories are projected to have fallen by 100,000 barrels, on average, in the same week. Seven analysts expect stockpiles to fall, while six expect a rise. Forecasts range from a rise of 3.3 million barrels to a drop of 3 million barrels.

Oil prices have been in a prolonged slump since last summer and many in the industry forecast a “lower for longer” scenario on continued oversupply concerns, which have been exacerbated by the expected return of Iranian oil to the market as early as next year.

“Assuming an extra 0.5 million barrels per day in Iranian supply on top of recent Organization of Petroleum Exporting Countries production, combined with some weaker seasonal demand in the first half of 2016...surplus could expand to 2 million barrels in the second quarter of 2016 before shrinking again,” said Tim Evans, an energy analyst at Citi Futures.

Nymex reformulated gasoline blendstock for October — the benchmark gasoline contract — fell 102 points to $1.4062 a gallon, while October diesel traded at $1.5303, 17 points lower.

ICE gasoil for October changed hands at $467.50 a metric ton, up $7.75 from Tuesday’s settlement.


Tuesday, September 22, 2015

Oil futures slide with focus on U.S. oil supply

Crude-oil futures dropped Tuesday, giving up some of the prior day’s strong gains, as analysts said data on U.S. oil supply and China’s economy could cause more price volatility this week.

Oil-futures for delivery in November CLX5, -2.58%  fell $1.04, or 2.2%, to $45.92 a barrel on the New York Mercantile Exchange. November Brent crude on London’s ICE Futures exchange LCOX5, -1.64%  fell 76 cents, or 1.6%, to $48.16 a barrel.

U.S. oil prices had surged 4.5% on Monday amid signs that low prices are starting to impact drilling activity and curb the pace of oil production in the U.S. This week’s numbers will be closely watched for more signs of supply adjustments.

“The rough zigzag pattern of recent weeks is continuing,” said Commerzbank commodity analysts in a note Tuesday. U.S. crude supplies are still higher than usual, so “it will take time for them to fall back to normal levels despite the drop in U.S. production,” they added.

“We think $50 per barrel is too low an oil price for medium or long-term equilibrium,” Paul Horsnell, head of oil research at Standard Chartered, said in a report. He said at $50 a barrel, oil supply stops increasing in non-OPEC regions, U.S. shale output falls and investment in conventional oil production is cut heavily as the price level is simply not sustainable for oil producers.

“Further, $50 a barrel leads to sharp increases in demand even in a period of weak economic growth,” Horsnell said.

Investor confidence in global economic growth, and the subsequent impact on oil demand, has also weighed on market sentiment in recent weeks, forcing the U.S. Federal Reserve to keep its interest rates on hold.

However, the U.S. dollar DXY, +0.14% did strengthen in the last couple of days on hawkish remarks from some members of the U.S. Federal Reserve, putting some pressure on oil prices.

Chinese President Xi Jinping said in a written interview with The Wall Street Journal the government is preparing a full slate of economic reforms for the rest of the year. Oil markets, which have become highly sensitive to macroeconomic news from China, are keeping a close watch on Beijing’s plans. Asian equity markets were mostly higher Tuesday, even as European stocks SXXP, -2.46%  and U.S. stock futures slumped.

The Asian Development Bank Tuesday lowered its forecast for China’s annual economic growth this year to 6.8% as pressures on the economy increased, from a previous forecast of 7.2%. Separately, a Chinese think tank said yesterday the country is unlikely to deliver the 7% annual growth target set by the central government, and lowered its estimate to 6.9%.

Nymex reformulated gasoline blendstock for October RBV5, -0.65% — the benchmark gasoline contract — fell a penny, or 0.4%, to $1.40 a gallon.