(Reuters) - Brent crude oil slipped more than $2 to around $110 a barrel on Friday after China's factory output grew at its slowest pace in 28 months and the dollar strengthened, as the market awaited tenders for sales from the IEA's emergency oil stocks release.
By 9:18 a.m. EDT, ICE Brent crude futures were down $2.27 to $110.21 a barrel, and U.S. crude futures were down $1.28 at $94.17. Both contracts were affected by a stronger dollar, which was up 0.30 percent against a basket of currencies .DXY.
The market took a knock after China's official purchasing managers' index (PMI) for June came in lower than forecast at 50.9, as weaker global demand and a tighter monetary policy trimmed production. Analysts' expectations were for a reading of 51.3, according to a Reuters poll.
"There's a concern that demand may drop off and that's tempering the upside momentum that we've seen in the crude oil price this week," said Michael Hewson, an analyst at CMC Markets.
He also suggested traders were profit-taking ahead of the long weekend in the U.S., with a public holiday on July 4. "We've also got the U.S. ISM coming up and I think that may miss, so people are being a little bit prudent ahead of the weekend," he said.
Investors are nervous about any signs of a slowdown in China as U.S. economic growth loses momentum and Europe struggles with its sovereign debt crisis.
Although the Greek parliament has voted for an austerity package this week, there is widespread skepticism the government can deliver on promised cuts to implement given the level of anger at street level.
"The euphoria after the Greek vote is over, so support from that side is fading," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. The market's focus is now expected to shift to the U.S. PMI and ISM numbers due later today.
"If they give further indication that two of the world's largest economies are slowing down it will be bearish for oil prices," Fritsch said.
IEA RELEASE
Investors also wondered how well the market will absorb the International Energy Agency's release of emergency oil stocks as Germany, the Netherlands and the United States began seeking bids for their crude supplies.
The U.S. government said its oil sale was "substantially oversubscribed," suggesting that all the 30.2 million sweet barrels offered will be taken.
"We continue to view Brent as overbought versus WTI," said Olivier Jakob, oil analyst at Petromatrix.
Brent has rallied over the last couple of days, partly due to dollar weakness versus the euro, traders said, and the IEA releases were expected to take some wind out of its sails.
"I think the increase that we have seen in prices since the start of the week was exaggerated, and there was a reason to come back from these lofty levels," said Fritsch. "With the news of the IEA release there is no reason why prices should stay above $110 a barrel."
Christopher Bellew, a trader at Jefferies Bache, added: "We've now gone back to the trading range we had before the IEA announcement. The market is not really trending up or down, it's just moving sideways."
Ecuador, a member of the Organization of the Petroleum Exporting Countries, did not see the release having any long-term impact on the market.
"These strategic reserves can be compared to a pail of water in an Olympic pool," said Oil Minister Wilson Pastor.
Some traders and analysts said the agency's planned 60 million barrel crude and oil product release has been badly coordinated outside the United States.
OPEC oil output is expected to remain lower in June than before the conflict in Libya largely shut down its oil industry, despite extra supply from Saudi Arabia and other Gulf members.
Libyan rebel forces have pulled back from their positions 50 miles south of Tripoli, reducing expectations that the conflict may soon come to a close.
(Additional reporting by Florence Tan in Singapore)
