July 1 (Bloomberg) -- Oil declined, trimming the biggest weekly gain in almost three months, as signs of slowing manufacturing growth in China and the U.S., the world’s biggest energy users, stoked speculation fuel demand may falter.
Futures slipped as much as 1.3 percent, their first decline in four days, after China’s Purchasing Managers’ Index fell to the lowest since February 2009. A U.S. report today may show a slowdown in factory activity. Prices also slid as OPEC boosted supplies and the U.S. offered 30 million barrels of oil from strategic reserves under an International Energy Agency plan to stabilize prices.
“Together with the direct impact of high oil prices, the slowdown in economic activity is having a strong impact on oil demand,” Christophe Barret, a London-based oil analyst at Credit Agricole SA, said in a note today.
Crude for August delivery on the New York Mercantile Exchange declined as much as $1.26 to $94.16 a barrel and was at $94.30 at 1:42 p.m. London time. The contract yesterday rose 65 cents to $95.42. Prices have risen 29 percent in the past year and 3.4 percent this week.
Brent oil for August settlement slid $1.57, or 1.4 percent, to $110.91 on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $16.59 to WTI. The spread reached a record $22.29 a barrel on June 15.
China’s Purchasing Managers’ Index fell to 50.9 in June from 52 in May, the China Federation of Logistics and Purchasing said in an e-mailed statement today. The median forecast in a Bloomberg News survey of 13 economists was 51.5. A reading above 50 indicates expansion.
China’s report “affirms their tightening of monetary policy is taking effect and impacting oil demand,” said Serene Lim, a commodity strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “China is where the growth is and having this kind of manufacturing activity data slowing down might be affecting the markets.”
A report today may show U.S. manufacturing also slowed last month. The Institute for Supply Management’s factory index fell to 52 from 53.5 in May, according to the median estimate of 77 economists in a Bloomberg survey.
Oil dropped early yesterday after the Labor Department reported that U.S. jobless claims fell less than expected in the week ended June 25. Claims slid by 1,000 to 428,000, compared with the median forecast of economists in a Bloomberg News survey of a drop to 420,000.
IEA members will release 60 million barrels of oil from strategic reserves over 30 days beginning at the end of this week to make up for a Libyan production shortfall and curb high prices, the agency said June 23. Half the crude will come from the U.S. Strategic Petroleum Reserve.
The U.S. offered light, sweet crude as part of the release. More than “90 offers to purchase oil were received” on June 29, the Energy Department said yesterday. Contracts will be completed by July 11, the agency said. The administration will continue to monitor oil supply and is prepared to act further, according to a government official.
The Organization of Petroleum Exporting Countries’ production rose by an average 210,000 barrels a day in June to 29.105 million, the highest since February, a Bloomberg News survey of oil companies, producers and analysts showed. Saudi Arabia increased crude output by 3.2 percent to a 32-month high. Daily output by the 11 members with quotas, all except Iraq, climbed 180,000 barrels to 26.4 million, 1.555 million barrels above their target.
Oil futures will probably fall next week amid signals that the economy is slowing as the first oil from strategic reserves enters the market, a Bloomberg News survey showed.
Fourteen of 36 analysts, or 39 percent, forecast oil will drop through July 8. Eight respondents, or 22 percent, predicted prices will increase and 14 estimated there will be little change. Last week, 44 percent of those surveyed said futures would drop.
August oil in New York faces resistance at about $96.05, the 200-day moving average, and $96.20, the middle of a Bollinger chart, according to Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.
Nymex crude, trading above its 55-week moving average amid a gain this week, will resume declines should prices fall below support levels at about $89, according to Citigroup Inc.
Crude has “decent support” at $89.07 to $90 a barrel, technical analysts Tom Fitzpatrick, Shyam Devani and Alex Good said in a report dated yesterday. That range is where the bottom of an ascending channel coincides with the 55-week moving average and the 50 percent Fibonacci retracement of oil’s rally from last year’s low, the analysts said.
--With assistance from Ben Sharples in Melbourne and Ann Koh in Singapore. Editors: John Buckley, Alessandro Vitelli
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