Saturday, July 2, 2011

Oil falls on weak China data, economic worry

new york: Oil fell on Friday, July 1 on signs of slower growth in China and weaker U.S. consumer sentiment, offsetting a supportive report showing an improving manufacturing sector in the United States.

An intraday bounce by the dollar against the euro and the strength of the dollar index .DXY, measuring the greenback against a basket of currencies, also helped pressure dollar-denominated oil.

"Crude futures fell today on the soft factory data from China and the stronger dollar," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

The U.S. Department of Energy announced the list of offers it had received for 30 million barrels of crude it will release from the Strategic Petroleum Reserve.

The sale attracted more interested buyers than barrels offered and investors continued to try to gauge the effect on the market from the new supply of crude and products that will enter the market as part of the International Energy Agency's coordinated release announced on June 23.

Both Brent and U.S. crude posted weekly gains despite Friday's price slips, with volatility aided by slim volumes ahead of Monday's U.S. Independence Day holiday. Volumes for both U.S. and Brent crude were well below 30-day averages.

Brent futures for August fell 71 cents to settle at $111.77 a barrel, after falling as low as $109.50 intraday. But front-month Brent rebounded to post a weekly gain of 6.33 percent.

U.S. crude fell 48 cents to settle at $94.94 a barrel, having recovered from an earlier $93.45 low. For the week, front-month crude gained 4.15 percent.

China's factory sector grew at its slowest pace in 28 months in June as new orders expanded less quickly as weaker global demand and tight monetary policy at home pinched production.

U.S. consumer sentiment worsened in June, a Thomson Reuters/University of Michigan survey showed. Falling gasoline prices stabilized consumers' view of current conditions, but longer-term expectations remained subdued.

The dollar got a boost and crude prices pared some losses intraday after data from the Institute for Supply Management showed the U.S. manufacturing sector expanded in June more than expected, sparking some optimism that the sputtering economy may be regaining some traction.

Any signs of a slowdown in China add to investor nervousness because of recent indications of slowed U.S. economic growth and Europe's struggles with its debt crisis.

Although the Greek parliament voted for an austerity package this week, there is skepticism about the government's ability to deliver on promised cuts.

Some analysts expect investor caution until next week's June nonfarm payrolls report arrives on July 8.

Oil was not the only commodity feeling pressure. The 19 commodity Reuters-Jefferies CRB index .CRB fell nearly half a percent, extending its weak trend from June and the second quarter.

"I'm hearing from hedge funds that there is a potential for a big unwind in commodities. At the very least they will start having to trade more on supply and demand fundamentals and less on outside factors," said Richard Ilczyszyn, senior market strategist, Lind-Waldock in Chicago.

"Longs (in oil) are wary that pushing prices too high will trigger another reserves release."

Money managers sharply cut their net-long U.S. crude futures and options positions in the week to last Tuesday, the Commodity Futures Trading Commission said in a report released after oil prices settled on Friday. - Reuters



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