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First Time Crude Oil Falls in Four Days on China, European Slowdown
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Oil dropped for the first time in four days as signs of slowing manufacturing growth in China and Europe increased speculation fuel demand may falter.
Futures declined 0.5 percent, trimming the biggest weekly gain in almost three months, after China’s Purchasing Managers’ Index fell to the lowest level since February 2009 and a gauge in the 17-nation euro area slipped to an 18-month low. Oil pared a 2.1 percent intraday loss after U.S. manufacturing unexpectedly increased and equities rallied.
“The Chinese number is economically bearish and that would explain some of the selloff today, given that prices had been rising,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. China is the world’s fastest-growing energy consumer.
Crude for August delivery fell 48 cents to settle at $94.94 a barrel on the New York Mercantile Exchange. Prices gained 4.2 percent this week, the most since the period ended April 8. They have risen 30 percent in the past year.
Brent oil for August settlement slid 71 cents, or 0.6 percent, to $111.77 on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium over New York futures narrowed by 23 cents to $16.83. 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 a statement today. The median forecast in a Bloomberg News survey of 13 economists was 51.5. A reading above 50 indicates expansion.

Chinese Manufacturing

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 manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 52 from 54.6 in May, London-based Markit Economics said today. The euro-area recovery is cooling as European leaders struggle to contain the Greek debt crisis.
New York futures recouped part of their drop as the Institute for Supply Management reported its U.S. manufacturing index rose for the first time in four months, a sign industry is rebounding after shortages of parts and components from Japan slowed production.
U.S. Manufacturing
“The U.S. report is good for oil because it allays some of the concerns about the second-half economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There is still bearish news out there, but this is a bright spot on the positive side.”
The U.S. manufacturing index reached 55.3 in June from 53.5 in May, according to the Tempe, Arizona-based ISM. It was forecast to drop to 52, according to the median estimate of 77 economists in a Bloomberg survey.
The U.S. and China are the world’s two largest oil- consuming countries, and manufacturing numbers are used as indicators for fuel demand growth.
The Standard & Poor’s 500 Index and Dow Jones Industrial Average were poised to extend their biggest weekly gain since July 2009. The S&P 500 rose 1.3 percent to 1,337.31 and the Dow average gained 153.60 points, or 1.2 percent to 12,567.94.
The Standard & Poor’s GSCI Index of 24 raw materials decreased 0.7 percent to 663.94 in the biggest one-day drop since June 23. Fourteen of the commodities dropped, nine increased and one was unchanged from the previous day.

Reserve Sales

Futures also declined 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.
Oil futures will probably fall next week amid signals that the economy is slowing as the government prepares to release the first oil from strategic reserves into 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.
Oil volume in electronic trading on the Nymex was 463,565 contracts as of 2:30 p.m. in New York. Volume totaled 525,529 contracts yesterday, 15 percent below the average of the past three months. Open interest was 1.54 million contracts, the highest level in two weeks.
Volume was light before the U.S. Independence Day holiday on July 4, when U.S. financial markets will be closed. Today is Canada Day, a national holiday and offices there are closed.
“I would assume that liquidity is very thin today because of the holidays in the U.S. and Canada,” said Katherine Spector, commodities strategist with CIBC World Markets Corp. in New York.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.