Bloomberg News

Oil Declines on Signs Chinese Economic Growth Will Slow, Cutting Demand

March 12, 2012

Oil fell for the first time in four days after Chinese economic data signaled slower growth by the world’s second-largest user of crude.

Futures dropped from a one-week high after China said on March 10 that the country’s trade deficit in February was the largest in at least 22 years. Government data also showed that China, the biggest consumer of crude after the U.S., had the weakest January-February factory-production gain since 2009 and retail sales below expectations.

“The market is taking a hard look at what the situation is on the ground in China,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Their economic activity is very much in question.”

Crude for April delivery declined $1.06, or 1 percent, to settle at $106.34 a barrel on the New York Mercantile Exchange. Oil ended at $107.40 a barrel on March 9, the highest settlement since March 1. Prices are up 7.6 percent in 2012.

Brent oil for April settlement on the London-based ICE Futures Europe exchange slid 64 cents, or 0.5 percent, to $125.34. Brent’s premium to WTI rose 42 cents to $19, the widest gap in five weeks.

“The China economic numbers are making people concerned that the non-OECD economy is not going to perform so well,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, referring to countries outside the Organization for Economic Cooperation and Development.

Trade Shortfall

The February trade shortfall of $31.5 billion reported by the customs bureau in Beijing was the first in a year and four times the size of the previous largest deficit. Exports (CNFREXPY) rose 18.4 percent from a year earlier as imports gained 39.6 percent.

Industrial production gained 11 percent in January and February, less than forecast, the National Bureau of Statistics reported on March 9. Retail sales rose 15 percent in the first two months from a year earlier, below the median economist estimate of 18 percent, data from the bureau showed.

“It’s all worries that China won’t be importing as much stuff, at least in the near term,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The trade deficit also raised concern about their growth rate.”

China used 9.06 million barrels a day of oil in 2010, according to the BP Statistical Review of World Energy. The U.S. used 19.1 million barrels.

‘Well-Supplied’

Oil also declined after the International Energy Forum’s secretary-general said discoveries are sufficient to replace depleting fields.

“Even now the market is well-supplied,” Aldo Flores- Quiroga said in an interview in Kuwait today. “New fields are being discovered. There are new areas where sources are being developed.”

The IEF, whose member nations account for more than 90 percent of global oil and gas supply and demand, will discuss oil-price volatility, renewable sources, and energy poverty in a two-day meeting in Kuwait that starts tomorrow.

Citigroup Inc. raised its Brent crude forecasts for the rest of this year amid a drop in exports of Iranian oil after European Union sanctions. Brent is expected to average $125 a barrel during the second quarter, $130 a barrel in the third and $125 in the fourth, Seth Kleinman, a London-based analyst at the bank, said in an e-mailed report.

Iran Exports

Iran’s exports may drop further because the EU sanctions are causing international ship owners to avoid the country. Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, pumped 3.45 million barrels a day in February, the lowest level since September 2002, according to Bloomberg News estimates.

Large speculators including hedge funds cut wagers on rising oil prices as concern eased that tension in Iran would cause a supply disruption. Net-long positions in futures and options combined fell by 7.3 percent in the week ended March 6, the U.S. Commodity Futures Trading Commission said in its Commitments of Traders report March 9.

Electronic trading volume on the Nymex was 463,532 contracts as of 3:31 p.m. in New York. Volume totaled 679,455 contracts on March 9, 8.4 percent above the three-month average. Open interest was 1.59 million, the highest level in almost nine months.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

March 12 (Bloomberg) -- Oil fell for the first time in four days after Chinese economic data signaled weaker growth in the world’s second-largest user of oil. Bloomberg's Alix Steel reports on Bloomberg Television's "in The Loop." (Source: Bloomberg) March 12 (Bloomberg) -- Jonathan Golub, chief U.S. market strategist at UBS Securities LLC, talks about outlook for U.S. markets, financials and oil prices. Golub speaks with Erik Schatzker, Stephanie Ruhle and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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