Brent slips below $110 on weak demand outlook
Singapore, March 12, 2013
Brent futures slipped below $110 a barrel on Tuesday on worries of a slowdown in demand growth in China and the United States, two of the world's biggest oil consumers, with a rise in the dollar weighing further on the market.
China's implied oil demand rose 4.9 percent in February from a year ago to the fourth highest level on record, but the growth rate was the slowest since September. That closely followed data over the weekend pointing to an uneven recovery in the country, while in the United States, crude stockpiles are expected to have risen an eighth straight week.
Brent crude slipped 47 cents to $109.75 a barrel by 0800 GMT, after settling lower for a second straight day. It rose to an intraday high of $110.28. U.S. oil fell 41 cents to $91.65, after ending 11 cents up.
"China's (oil numbers) appear to be consistent with the industrial production numbers and appear to feed into concerns of developing weakness in China and moderation in growth," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
"That is significant for oil markets because of China's huge share in the world oil demand."
Concerns over the demand outlook overshadowed the support oil enjoyed earlier in the day from a strong U.S. equity market.
A revival in investor confidence of a steady recovery in the world's biggest economy following Friday's solid U.S. jobs data pushed the Dow Jones industrial average to another record, supporting oil and other high-risk assets.
"Concerns of a rise in inventory in the United States is a negative, but the oil market is supported by the rise we have seen in the Dow," said Ken Hasegawa, a commodity sales manager at Newedge in Tokyo.
Hasegawa expects oil to continue to track equities because of a lack of compelling fundamental factors to drive prices. That will keep Brent in a tight range of $109 and $111.50 a barrel for the next 24 hours, and U.S. oil between $91 and $93.
According to Reuters technical analysis, Brent looks neutral in a range of $109.14 to $111.33, while a bullish target at $92.68 remains unchanged for US oil as a rebound from the March 4 low of $89.33 has not been completed.
The benchmark Standard & Poor's 500 stock index rose for a seventh straight session on Monday and hit its highest intraday level since October 2007. The Dow Jones industrial average closed at a record 14,447.29.
But the same optimism over a revival in the US economy also bolstered the dollar, pushing the dollar index up 0.17 percent. A stronger greenback can weigh on dollar-denominated commodities such as oil.
DEMAND OUTLOOK, SUPPLIES
China's implied oil demand rose to about 10.14 million barrels per day (bpd) as refiners raised crude throughput.
Reuters calculations based on preliminary government data also showed demand in January rose 8.6 percent on the year to about 10.43 million bpd, the third highest on record, as oil firms replenished stocks before the New Year.
"China's demand will tick along at about a 5 percent growth per annum," a Singapore-based trader with a Western firm said. "That is not a very large increase because it used to grow over 10 percent in the past."
A preliminary Reuters poll of six analysts showed U.S. crude inventories rising 2.4 million barrels in the week to March 8. All six analysts forecast a build in crude stocks.
The poll survey was taken ahead of weekly inventory reports from industry group the American Petroleum Institute (API) and the Energy Information Administration (EIA).
The likelihood of a resumption in exports from South Sudan also weighed on the market. Sudan and South Sudan have agreed to order the resumption of the flow of southern oil exports through pipelines in Sudan within two weeks, more than a year after Juba shut down its entire output, a mediator said on Tuesday.
Landlocked South Sudan, which seceded from Sudan in July 2011, shut down its 350,000 barrel-per-day output in January last year in a dispute with Khartoum over fees. - Reuters