Oil price falls first time in 4 days after weak Chinese manufacturing data

Crude prices fell for the first time in four days.
Crude prices fell for the first time in four days. PHOTO: REUTERS

SEOUL (Bloomberg) - Crude declined for the first time in four days as a measure of manufacturing activity signaled contraction for a third straight month in China, the world's second-biggest oil consumer.

Futures retreated as much as 0.9 per cent in New York after advancing 4.5 per cent last week. China's official purchasing managers index remained at 49.8 in October, the National Bureau of Statistics said Sunday (Nov 1), compared with an estimate of 50, the line between expansion and contraction. Iran will officially inform other Opec members of its plans to raise crude production at the group's Dec 4 meeting, Oil Minister Bijan Namdar Zanganeh said in an interview with the Mehr news agency.

Oil failed to sustain a rally above US$50 a barrel in October amid signs a global glut will be prolonged as rising US stockpiles keep supplies more than 100 million barrels above the five-year seasonal average. The Organisation of Petroleum Exporting Countries continues to pump crude at a faster pace than the limit the group has set for itself, with production near the highest level since 2008. China stepped up monetary easing with its sixth interest-rate cut in a year last month amid a slowing economy.

"China's manufacturing sector, which is still in contraction, is adding downward pressure on oil as it's closely related to demand for oil products," Hong Sung Ki, a commodities analyst at Samsung Futures Inc, said by phone.

"Iran planning to add output by 500,000 barrels a day has been widely expected but the important matter is how fast it can raise production after the sanctions are lifted."

West Texas Intermediate for December delivery lost as much as 43 US cents to US$46.16 a barrel on the New York Mercantile Exchange and was at US$46.36 at 2.32pm Singapore time. The contract gained 53 US cents to US$46.59 on Friday, the highest close since Oct 16. The volume of all futures traded was about 41 per cent below the 100-day average. Prices have decreased 13 per cent this year.

China Contraction Brent for December settlement added 4 US cents to US$49.60 a barrel on the London-based ICE Futures Europe exchange. Prices rose 3.3 per cent last week. The European benchmark crude traded at a premium of US$3.22 to WTI.

The unchanged manufacturing PMI suggests continued monetary easing by China's central bank has not yet boosted smaller businesses as much as their larger, state-owned counterparts, which are able to borrow at reduced rates. A private manufacturing PMI reading by Caixin Media and Markit Economics released on Monday was at 48.3, compared with the median projection of 47.6 in a Bloomberg survey and up from 47.2 in September.

Iran's plans to boost output by 500,000 barrels a day will not cause crude prices to decline because the market already accounts for the additional barrels, according to Mehr news agency citing an interview with Minister Zanganeh. The Middle East nation plans to raise production by 1 million barrels a day by the end of Iranian year in late March.

Money managers' short position in WTI crude jumped 24 per cent in the week ended Oct 27, according to data from the Commodity Futures Trading Commission. Net-long positions declined 15 per cent, the most since July.