Oil falls on concerns for China demand
THE price of oil fell yesterday as weak manufacturing data from China raised questions about the strength of oil demand in the world’s second largest economy.
Oil’s decline was exacerbated by sharp declines in global stock markets amid indications that the US Federal Reserve’s may pull back on its economic stimulus programme. An earlier loss of US$2 a barrel was trimmed by midday, however, as US stock markets recovered.
Benchmark oil for July delivery was down 64 cents to US$93.64 a barrel in midday trading on the New York Mercantile Exchange.
HSBC Corp said a preliminary version of its monthly purchasing managers’ index fell to 49.6 for May from 50.4 in April. Numbers below 50 indicate contraction. Oil prices fell because a downturn in energy-hungry China would likely lead to a decline in crude demand.
Oil prices struggled as global stock markets turned lower due to signs that the US Federal Reserve could slowly tighten its monetary policy. Equity markets posted large losses yesterday in Asia and Europe, including a 7.3 per cent fall in Tokyo’s Nikkei 225 index of shares. US stock markets fell initially then recouped some earlier losses. On Wednesday, stocks slumped in the afternoon when minutes from the Fed’s last policy meeting showed some members favoured slowing the central bank’s stimulus programme.
Ample US supplies of crude oil and refined products such as gasoline are also weighing on oil, even as the summer driving season gets underway in the US with Memorial Day weekend. AAA’s prediction that for the third time in four years more than 31 million Americans would hop in the car and drive 50 miles (80 kilometres) or more didn’t sway analysts.
“Ahead of the start of the summer driving season, (gasoline) stocks are six per cent up on the long-term average and 10 per cent higher than last year’s level,” said a report from Commerzbank.
Brent crude, a benchmark for many international oil varieties, was down US$1.05 to US$101.55 a barrel on the ICE Futures exchange in London.