MW: Oil prices slide on China slowdown, Fed worries
By Saumya Vaishampayan and Sara Sjolin, MarketWatch
NEW YORK (MarketWatch) — U.S. crude-oil futures slid on Thursday, as the market grappled with weak manufacturing-activity figures from China, an increase in U.S. oil supply and signals from the Federal Reserve that a reduction in monetary stimulus is in sight.
Crude for July delivery CLN3 -2.88% lost $2.54, or 2.5%, to $95.70 a barrel.
Further risk aversion on Thursday in North American trade and a surge in the U.S. dollar have created “a perfect storm of bearishness” for crude-oil futures, said Matt Smith, a commodity analyst at Schneider Electric.
U.S. jobless claims for the week ended June 15 rose by 18,000 to a seasonally adjusted 354,000, more than expectations of a rise to 340,000. The weaker-than-expected claims data gave more credence for the oil selloff, said Smith. “I think the jobless claims were really the cherry on top of things,” he said.
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Data out earlier Thursday — which spurred oil’s losses — showed a further slowing in China’s manufacturing sector in June. The “flash” version of HSBC manufacturing Purchasing Managers’ Index fell to a nine-month low of 48.3, down from May’s final reading of 49.2. A reading below 50 indicates contraction.
The “disappointing flash reading” for June and the Chinese government’s “priority attention on structural reform rather than near-term weakness, suggest that the economic activity may continue on the weak side in the near term,” said emerging-markets analysts at J.P. Morgan to clients on Thursday.
They also said those factors pose some downside risk to their forecast of a modest recovery in the second quarter.
Softness in Chinese manufacturing activity dents the prospects for energy demand, as do data showing that U.S. oil stockpiles continue to grow. On Wednesday, the U.S. Energy Information Administration said crude-oil supplies rose by 300,000 barrels to 394.1 million barrels in the week ended June 14. A Platts survey of analysts forecast a decline of 1 million barrels.
The combination of events “caused crude oil to throw in the towel,” said Schneider Electric’s Smith.
Crude prices on Wednesday finished floor trading on the New York Mercantile Exchange down 20 cents at $98.24 a barrel, after the EIA data and after the Federal Reserve issued a more upbeat forecast for the U.S. economy.
Stronger economic growth is positive for energy demand, but energy investors have also been concerned that the Fed will soon slow the pace of bond purchases that are aimed at bolstering economic activity.
The Fed on Wednesday said if the economy improves in line with its forecasts, then it foresees reducing the pace of bond buying — currently set at $85 billion a month — by the end of the year.
The dollar climbed on the back of the meeting, further adding pressure on energy prices. Dollar-denominated commodities tend to fall on a rising greenback as they become more expensive for other currency holders.
The ICE dollar index DXY +0.90% traded at 82.054, up from 81.301 in late trade on Wednesday.
Brent crude for August delivery UK:LCOQ3 -3.01% dropped $3.47, or 3.2%, to $102.68. Crude for August delivery CLQ3 -2.96% CLQ3 -2.96% , the most active contract, shed $2.73, or 2.8%, to trade at $95.74.
The U.S. Energy Information Administration reported an increase of 91 billion cubic feet in U.S. stocks for the week ended June 14, bringing total inventories to 2.438 trillion cubic feet. Analysts polled by Platts had forecast a rise in stocks of between 88 billion cubic feet and 92 billion cubic feet.
Natural gas for July delivery NGN13 -1.16% fell 7 cents, or 1.8%, to $3.89 per million British thermal units.
July gasoline RBN3 +0.74% lost 9 cents, or 23.1%, to $2.80. July heating oil was down 8 cents, or 2.8%, to $2.89.
Saumya Vaishampayan is a MarketWatch reporter based in New York. You can find her on Twitter @saumvaish.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin. Carla Mozee also contributed to this report.
