Bloomberg News

Oil Trades Near Seven-Month Low as China Output Misses Estimates

June 01, 2012

Oil traded near the lowest close in seven months, heading for its longest weekly losing streak in five and a half years, after a Chinese manufacturing index missed estimates, adding to speculation demand will falter.

Futures were little changed after sliding as much as 0.7 percent. China’s Purchasing Managers’ Index fell to 50.4 in May, below the median estimate of 52 in a Bloomberg News survey of 27 economists. U.S. jobless claims rose while the country’s crude stockpiles increased to a 22-year high last week, reports showed yesterday. Fitch Ratings downgraded the credit of eight Spanish regions and Saudi Arabian oil output advanced to the highest level since 1989.

“It’s very much doom and gloom out there,” said Gordon Kwan, the head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong, who forecasts New York crude will fall to $85 and London-traded Brent to $100 a barrel in “the short term.” “You’re talking about PMI on the edge of falling below 50, which could mean a shrinking economy in China.”

Oil for July delivery fell as much as 63 cents to $85.90 a barrel and was at $86.40 in electronic trading on the New York Mercantile Exchange at 2:36 p.m. Singapore time. The contract yesterday slid 1.5 percent to $86.53, the lowest close since Oct. 20. Prices are 13 percent lower this year and down 4.9 percent this week for a fifth weekly drop, the longest losing streak since January 2007.

Brent oil for July settlement was at $101.91 a barrel, up 4 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate was at $15.52, from $15.34 yesterday.

‘Declining Confidence’

China’s PMI expanded at a slower pace for the first time in six months, the country’s statistics bureau and logistics federation said in a statement today in Beijing. It’s the weakest since December. A reading above 50 indicates expansion.

“One of the main channels that the problems in Europe have manifested throughout the world’s economy is the impact of declining confidence in both consumers and business,” Ric Spooner, a chief market analyst at CMC Markets in Sydney, said in a telephone interview today. “There are concerns about China, too, and that is being driven by the impact of what’s happening in Europe on their export sector.”

Oil output by the Organization of Petroleum Exporting Countries rose to the highest level since 2008 in May as Saudi Arabia pumped crude at the fastest pace in at least 23 years, a Bloomberg survey showed. OPEC production gained 20,000 barrels to an average 31.595 million barrels a day in May from a revised 31.575 million in April, according to the survey of oil companies, producers and analysts.

Oil Stockpiles

U.S. crude inventories climbed 2.2 million barrels to 384.7 million last week, the highest level since July 1990, figures from the Energy Department showed. They were forecast to rise 1 million barrels, according to the median estimate of 11 analysts in a Bloomberg News survey.

Gasoline supplies dropped 833,000 barrels to 200.2 million barrels, Energy Department data showed. They were projected to slip 1 million barrels, according to the survey. Distillate stockpiles, a category that includes heating oil and diesel, fell 1.7 million barrels compared with an estimate that inventories would remain unchanged.

First-time claims for unemployment insurance payments increased by 10,000 to 383,000 in the week ended May 26, Labor Department data showed yesterday.

Non-farm Payrolls

U.S. companies added 133,000 new jobs in May, up from an April figure of 113,000 that was revised lower, according to data from ADP Employer Services. That was less than a forecast of 150,000 by economists surveyed by Bloomberg.

Hiring last month expanded by 150,000 jobs, according to a survey of analysts before a Labor Department report of non-farm payrolls today.

“This month’s miss by the cognoscenti, plus last month’s revision is a concern given the high correlation to the non-farm payroll report,” Stephen Schork, President of the Schork Group Inc., said in a note today.

In Europe, Fitch lowered the ratings of Andalusia, Asturias, the Basque country, Cantabria, Madrid and Murcia as well as the Canary Islands and Catalonia, which are now one level above junk status. All regions have a negative outlook, the rating company said yesterday.

Price Outlook

Oil may decline next week on concern that the euro-zone debt crisis will spread, slowing economic growth and curbing fuel demand, a Bloomberg survey showed.

Seventeen of 33 analysts and traders, or 52 percent, forecast oil will drop through June 8. Nine respondents, or 27 percent, predicted an increase and seven estimated prices will be little changed. Last week, 54 percent of surveyed analysts expected a decrease.

Oil in New York has technical support along its lower Bollinger Band, according to data compiled by Bloomberg. Futures yesterday halted their decline near that indicator, which is around $84.28 a barrel today, a price last traded in October. Buy orders tend to be clustered near chart-support levels.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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