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Oil Trades Near Two-Week Low On Manufacturing Slowdown

By on August 1, 2012

Oil traded near the lowest level in more than two weeks in New York as concern that central banks won’t act to stimulate a slowing global economy outweighed signs of shrinking supplies.

Futures were little changed after earlier falling 0.6 percent as measures of manufacturing inChina and Australia weakened. The U.S. Federal Reserve will forgo announcing a third round of asset purchases after a two-day meeting ends today, according to 88 percent of economists surveyed by Bloomberg News. European Central Bank policy makers meet tomorrow. U.S. crude stockpiles shrank 11.6 million barrels last week, the most since September 2008, theAmerican Petroleum Institute said.

“The initial knee-jerk reaction will be to slowing manufacturing in China,” said Victor Shum, the managing director of IHS Consulting in Singapore. “But that means the policy makers in Beijing will need to step up measures to stimulate the economy. Prices are still down because the top issues remain concern that the Fed and ECB won’t do anything substantial.”

Crude for September delivery was at $88.03 a barrel, down 3 cents, in electronic trading on theNew York Mercantile Exchange at 2:17 p.m. Singapore time. The contract yesterday decreased $1.72 to $88.06, the lowest close since July 13. Prices are 11 percent lower this year.

Brent oil for September settlement on the London-based ICE Futures Europe exchange was at $104.70 a barrel, down 22 cents. The European benchmark crude was at a premium of $16.67 to New York-traded West Texas Intermediate grade. The spread was $16.86 yesterday, the widest since May.

Manufacturing Outlook

Oil’s decline may accelerate in New York as an indicator known as the moving average convergence-divergence falls below its signal line for the first time in seven weeks, according to data compiled by Bloomberg. Investors tend to sell contracts on a so-called bearish MACD crossover. Futures have technical support around $85.85 a barrel, where the 50-day moving average coincides with the middle Bollinger Band.

A purchasing managers’ index in China, the world’s second- biggest oil consumer, fell to 50.1 in July, the lowest reading in eight months, data from the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing showed today. That’s below a median estimate of 50.5 in a Bloomberg News survey of 24 economists. A reading above 50 signals an expansion and below 50 a contraction.

“The PMI is below market expectations,” said Selena Ling, head of treasury research and strategy at Oversea-Chinese Banking Corp. in Singapore. “This suggests the Chinese growth slowdown will extend. This, coupled with the other dovish global economic signals, could keepoil prices somewhat subdued.”

HSBC Index

A separate purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics indicated that China’s manufacturing contracted at a slower pace in July. The gauge, which covers more than 420 companies and is weighted toward smaller businesses, rose to 49.3 from 48.2 in June, after a preliminary reading of 49.5 released last week.

A measure of Australian manufacturing slid 6.9 points to 40.3, the weakest since June 2009 and the fifth drop in six months, the Australian Industry Group and PricewaterhouseCoopers said in a survey today.

Australia & New Zealand Banking Group Ltd. (ANZ) reduced its forecasts for West Texas and Brent for the third and fourth quarters, citing concerns over the short-term demand outlook in China and European instability. The bank cut its estimate for New York crude in the three months ending Sept. 30 by 3.1 percent to $93 a barrel, according to an e-mailed note today.

Crude Stockpiles

Oil output from the Organization of Petroleum Exporting Countries fell a second month in July as Iranian production shrank to a 22-year low, according to a Bloomberg News survey. Output dropped 393,000 barrels, or 1.2 percent, to an average 31.165 million barrels a day from 31.558 million in June, the survey of oil companies, producers and analysts showed. It was the second monthly decline after daily production reached 31.62 million barrels in May, the highest since October 2008.

Crude stockpiles in the U.S., the largest oil consumer, slid to 369.7 million barrels last week, the industry-funded API said yesterday. The Energy Department may say today that supplies fell 1 million barrels to 379.1 million, according to a Bloomberg News survey. Gasoline inventories decreased 1.3 million barrels, according to the API. The government report may show supplies rose 800,000 barrels.

“I would have anticipated the API data to be supportive but let’s see what the Energy Department report shows,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “The focus still remains on what the Fed and ECB will do.”

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.