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.