RBOB Leads Oil Futures Plunge on China

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled lower Monday afternoon as disappointing manufacturing data in the United States and China -- the world's two largest economies and oil consuming nations -- raised the prospect of weakening demand at a time the domestic and global markets have a glut of supply.

NYMEX RBOB futures were the weakest segment of the oil futures complex, down 5.5% as the September contract took over as the nearest delivered contract. NYMEX ULSD futures traded at a new six-year low on the spot continuation chart while the ICE Brent contract settled below the $50 bbl psychological mark for the first time since January.

"[Oil] prices extended their recent decline on soft July PMI data in China and elsewhere," said analyst Tim Evans at Citi Futures. "We note that Brazil, India, and Russia also slowed. The overall impression is of a global economy that is growing but with notable areas of weakness that will limit demand growth across a range of commodities, including petroleum."

A stronger dollar also pressured the oil complex with the dollar angling higher on expectation the Federal Reserve would raise interest rates later this year. Oil and the greenback often have an inverse trading relationship.

NYMEX September crude futures settled $1.95 lower at $45.17 bbl, near a 4-1/2 month spot low of $45.08. ICE September Brent futures settled $2.69 lower at $49.52 bbl, edging off a fresh six-month spot low of $49.36.

NYMEX September ULSD futures tumbled 5.84cts to $1.5305 gallon at settlement, off a six-year spot low of $1.5283. The NYMEX September RBOB futures contract cratered 9.75cts to $1.6745 gallon at settlement after trading at a five-month spot low of $1.6722.

On Wall Street, U.S. equities were lower this afternoon after the Institute for Supply Management's manufacturing purchasing managers index fell to 52.7 in July from 53.5 in June. A reading above 50 points indicates expansion, but the weaker monthly figure followed data from China released over the weekend that showed China's manufacturing activity fell to a two-year low in July, renewing concern over the global economy that helped drive industrial metals and oil futures sharply lower.

Analysts also said the market is concerned the oil surplus could expand in the medium to longer term rather than tighten as many had anticipated a few months earlier.

The selloff at the start of August also comes after the market posted its biggest monthly loss since the 2008 global financial crisis in July, pressed lower by the Greek debt crisis, Iranian nuclear deal and a stream of weak economic data from China.

"The biggest reason why oil crashed was because of the slowdown in China," said analyst Phil Flynn at Price Futures Group. "Even though China oil imports hover near record highs the slowdown talk is causing many to question whether that pace will continue."

Michael Wittner, an analyst at French bank Societe General, said oil is caught up in the downward momentum in commodities markets, with hedge funds exiting long positions on risk-aversion.

On supply, oil demand is expected to drop in the autumn when refiners embark on seasonal maintenance. U.S. crude production has been high over the past few months but is expected to flat line by next year.

An early survey of weekly U.S. supply shows the market expects an increase in U.S. crude inventory of 500,000 bbl for the week-ended July 31, with gasoline stocks seen down 250,000 bbl and distillate stocks up 3.0 million bbl.

Iran's oil minister Bijan Zanganeh said today Tehran was boosting its oil marketing efforts so Iran can lift its exports by 500,000 bpd immediately after the sanctions are lifted expected towards the end of the year. Iran's exports in June were pegged at 1.4 million bpd, according to the Energy Information Administration.

OPEC oil production is estimated 1.0 million bpd above an agreed to 30 million bpd ceiling.

George Orwel can be reached at george.orwel@telventdtn.com