MW: Oil prices under pressure after weak Chinese manufacturing data
Oil prices resumed their downward trajectory Friday following on weak Chinese manufacturing data, as markets remain jittery due to concerns about global economic growth.
U.S. oil prices reversed overnight gains pressured by rising supply levels and are still vulnerable to falling below the key psychological price level of $40 a barrel.
Light, sweet crude futures for delivery in October CLV5, -0.61% were off 26 cents, or 0.7%, to $41.05 a barrel on the New York Mercantile Exchange. October Brent crude LCOV5, -0.92% on London’s ICE Futures exchange fell 24 cents, or 0.5%, to $46.41 a barrel.
Oil futures were on track for a 3.5% weekly decline, which would mark their eighth week of losses, while Brent futures were facing a 5.6% drop.
Early Friday, the preliminary Caixin China Manufacturing Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, fell to a 77-month low in August to 47.1, compared with a final reading of 47.8 in July.
“Today’s weaker-than-expected PMI will add to mounting concerns over Chinese growth,” Julian Evans-Pritchard, China economist at Capital Economics said. He however added that market sentiment is “currently overly downbeat” and that policy support will limit the downside risk to economic activity over the next couple of quarters.
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Volatility in Chinese equity markets, Beijing’s inability to stem market losses, the devaluation of the yuan and a decline in commodity prices on fears of falling Chinese demand have also weighed on oil prices in recent weeks. Oil prices are down by about 55% to 56% from a year earlier.
However, several analysts have pointed out that the oil-price slide is likely overdone, with market sentiment souring when prices were already low due to oversupply concerns.
It is possible for U.S. oil prices to fall below $40 a barrel and even reach the low $30s, but such a fall isn’t rooted in fundamentals and would be a short-term phenomenon spurred by speculative trade or a brief storage shock, Anthony Starkey, analyst at Bentek Energy, a unit of Platts, said.
“We think that the downward correction in commodity prices has gone too far. Oil prices below $40 a barrel are not sustainable as this would lead to a further sharp cutback in investments,” analyst Hans van Cleef at ABN Amro said.
He said oil prices could recover from recent losses when U.S. crude production is significantly hit and expects Brent crude to average $60 a barrel and WTI to average $55 a barrel in 2015.
Meanwhile, excess supply remains a problem for oil prices. The latest Saudi Arabian oil production levels may have risen further to a record high of 11 million barrels a day in June, Switzerland-based research group Petromatrix said in a note.
Friday’s investor focus will be on additional global manufacturing data, commodity trade numbers from China and U.S. weekly oil rig-count numbers.
Elsewhere in energy trading, September reformulated gasoline RBU5, -1.85% fell 2 cents, or 1.3%, to $1.515 a gallon, while September heating oil HOU5, -0.82% lost 1 cent, or 0.5%, to $1.487 a gallon.
