MW: Brent brushes sub-$60, as China manufacturing data crushes oil
Crude-oil futures tumbled in Tuesday with Brent oil falling below $60 as market sentiment remained bearish and data showed a further slowdown in China’s manufacturing sector.
On the New York Mercantile Exchange, U.S. crude futures for delivery in January CLF5, -3.22% traded at $54.59 a barrel, down $1.3, or 2.4%, in the Globex electronic session. January Brent crude LCOF5, -3.54% on London’s ICE Futures exchange slid $1.54 , or 2.5%, to $59.52 a barrel. The contract has tapped $59 in early European trading hours, a level not seen since July 2009. See Monday’s action
Oil prices have now fallen around 47%-48% since their peak in June this year, their largest drop since the 2008-2009 financial crisis. The slump in oil prices is having a ripple effect across financial markets and economies, and market participants are still unsure of where prices will bottom.
China’s manufacturing sector showed a decline as HSBC’s China flash manufacturing purchasing managers’ index for December slid to a seven-month low of 49.5, compared with 50.0 in November.
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“With China PMI lower than expected, we would need U.S. and E.U. manufacturing PMI to perform exceptionally well, or else [oil] prices would likely continue on its descent,” analyst Daniel Ang at Phillip Futures said.
Data showed a mixed batch of PMI data out of Germany, with multi-month lows for the services and composite PMIs, though the manufacturing PMI rose to two-month high. France’s manufacturing PMI fell to a four-month low.
In the last three months alone, Brent crude has tumbled 40%, a level of adjustment that has only happened three times in the last 24 years, according to Morgan Stanley.
The Organization of the Petroleum Exporting Countries won’t call for an emergency meeting unless something drastic happens in the oil market, the United Arab Emirates’ oil minister Suhail Al Mazrouei said Monday.
He said the cartel won’t cut its production level for now as the move would only provide a temporary fix to the price drop. The refusal of OPEC and its core members to balance oil markets has caused much of the recent oil price slump, but the U.S. shale revolution has also contributed to the global oil surplus.
‘Fat’ leaving system, floor unknown: “As the industry takes the ‘fat’ out of the system that was built up over the past decade, the new equilibrium price is dropping sharply — where it settles is unknown right now,” Jeffrey Currie, head of commodities research at Goldman Sachs Group, said in a note.
He said data on the cost of producing oil will give a better idea of where oil prices will settle, “but in the meantime, volatility will likely remain high with risks skewed to the downside as the market searches for a new equilibrium.”
Morgan Stanley’s Adam Longson said an improvement in the demand-supply fundamentals for crude in the near-term don’t matter for the oil price right now.
He said other factors like price momentum and headlines will likely continue to drive oil prices until the physical market forces a change, such as shutting off oil production.
Nymex reformulated gasoline blendstock for January NGF15, +0.27% — the benchmark gasoline contract — fell 96.00001 points to $1.5668 a gallon, while January diesel traded at $1.9837, 180 points lower.
ICE gasoil for January changed hands at $549.75 a metric ton, down $6.00 from Monday’s settlement.
