West Texas Intermediate oil slipped to the lowest level this year as Chinese manufacturing expanded less than forecast and U.S. federal spending cuts were set to be triggered, bolstering concern that fuel demand will decline.
Futures fell 1.5% after data showed China’s manufacturing slowed for a second month while factory output in the euro area contracted for the 19th straight month. Democrats and Republicans are in a standoff over how to replace the cuts totaling $1.2 trillion over nine years, $85 billion of which would occur in this fiscal year. OPEC raised output 0.3% to 30.7 million a day in February, a Bloomberg survey showed.
“The global manufacturing numbers are very weak, and that’s always bad for commodities,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Budget cuts come into effect today, and although they may not be as bad as previously thought, they may have a negative impact on commodity demand.”
Crude oil for April delivery fell $1.37 to $90.68 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 24. Prices dropped 2.6% this week. The volume of all futures traded was little changed from the 100-day average at 2:35 p.m.
Brent oil for April settlement dropped 99 cents, or 0.9%, to $110.39 a barrel on the London-based ICE Futures Europe exchange. Volume was 54% above the 100-day average. The European benchmark grade traded at a premium of $19.71 to WTI, up from $19.33 yesterday.
In China, the world’s biggest oil-consuming country after the U.S., manufacturing slowed last month, the PMI report from the Federation of Logistics and Purchasing in Beijing showed. The reading fell to 50.1 last month from 50.4 in January.
A gauge of U.K. manufacturing based on a survey of purchasing managers slid to 47.9 last month, according to Markit Economics and the Chartered Institute of Purchasing and Supply. In the euro region, a factory gauge was unchanged in February at 47.9, marking a 19th month of contraction, according to a separate Markit report today.
“Oil is down because of the disappointing manufacturing index data overnight, especially the Chinese number, which shows the country had the smallest of expansions,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “U.K. manufacturing has plunged into contraction, which is going to hurt demand.”
Futures rebounded from the day’s lows U.S. consumer confidence increased and a report showed that manufacturing grew at the fastest pace since June 2011.
The dollar climbed to the highest level against the euro in almost three months after Italian elections this week delivered a four-way parliamentary split. The U.S. currency rose above $1.50 against the pound for the first time since July 2010. A stronger dollar curbs the appeal of raw materials to investors.
“We’re seeing a lot of flight into the dollar since the Italian election,” Kilduff said. “The pound broke through $1.50 today, which is a very important level.”
The Standard & Poor’s GSCI Index of 24 commodities fell as much as 1.3% to 640.03, the lowest level since Dec. 31.
Output by members of the Organization of Petroleum Exporting Countries climbed as a gain by Libya outweighed a cut by Saudi Arabia, the Bloomberg survey showed. Libyan daily production increased by 130,000 barrels to 1.24 million last month, the biggest gain of any member, after the reopening of the country’s Zueitina export terminal early in February.
Saudi Arabia, OPEC’s biggest producer, pumped 9 million barrels a day, the least since May 2011, according to the survey. Output was down 100,000 barrels from January and 900,000 barrels from May, when production reached the highest since at least January 1989.
“We’re seeing oil be more conservatively priced, but we still aren’t at fair value,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The fundamentals support a price in the $80-to-$85 area.”
U.S. crude inventories increased 1.13 million barrels to 377.5 million last week, the highest level since July, a Feb. 27 Energy Information Administration report showed. Output climbed to 7.12 million barrels a day in the week ended Feb. 15, the most since August 1992.
“The fundamentals didn’t justify the high level of oil prices,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “The fundamentals are reasserting themselves.”
Net-long positions in West Texas Intermediate oil held by money managers, or wagers on rising prices, climbed to 221,534 in the week ended Feb. 15, the highest level since March 2012, according to the Commodity Futures Trading Commission’s Commitments of Traders report.
“One has to remember that there was an awful lot of length in the market,” Evans said. “We’re seeing massive reversal now, which is putting pressure on futures.”
Electronic trading volume on the Nymex was 453,728 contracts as of 2:37 p.m. It totaled 455,826 contracts yesterday, 14% below the three-month average. Open interest was 1.66 million contracts.