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.


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