Oil Ends Lower on Demand Concerns

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended lower Monday afternoon as traders booked profits after last week’s rally following weaker than expected manufacturing data in China and the United States fueled fears about slowing demand growth.

Meantime, oil supply is seen rising in Russia, Iran and the U.S. Russia’s energy ministry said oil production rose last month to a post-Soviet era high, while an analyst said weekly U.S. crude oil inventory for the week-ended Oct. 30 increased 4.5 million barrel.

“Weak PMI data from China set an easier tone for the petroleum markets on Monday, but there was no urgency to the selling even with Russian oil production reaching a new record high and Iran apparently decommissioning centrifuges as a forward step under its international nuclear agreement toward the eventual lifting of sanctions,” said analyst Tim Evans at Citi Futures. “A slowing economy in China and Iranian nuclear developments are apparently no longer news, at least as far as the oil market is concerned.

He added, “At the same time, we see potential that the ongoing physical surplus in the market, expanded and extended by the eventual addition of Iranian barrels, will eventually translate into lower prices. Viewed from a short-term perspective, the price action suggests that the bearish current fundamentals have already been factored in.”

The NYMEX December West Texas Intermediate futures contract settled down 45 cents at $46.14 barrel, while the ICE December Brent crude futures contract fell 77 cents to $48.79 bbl.

Technical analysts said the medium-term trend remains sideways for both WTI and Brent futures, with resistance holding at $47.24 for WTI and at $52.70 for Brent.

In products trade, NYMEX December ULSD futures settled down 0.9 cents to $1.5069 gallon, reversing off a two-week high of $1.5217. The December RBOB futures contract added 0.37 cents to settle at $1.3753 gallon.

The dollar came under pressure after the Institute for Supply Management said U.S. factory activity expanded in October at its slowest pace in 2-1/2 years, a sign manufacturing sector remains under pressure from a weak global economy and what has been a strong dollar. The ISM data show U.S. purchasing managers index fell 0.1 to 50.1, the fourth straight monthly decline.

While lower Monday, the dollar remains near last week's 2-1/2-month high on speculation the U.S. Federal Reserve will raise interest rates in December if the October jobs report due Friday is positive. The odds of a rate hike have now risen to above 50%, according to a Bloomberg News survey.

The big news Monday was the weak PMI data. Markit’s survey of purchasing managers in China showed PMI nudged up slightly to 48.3 in October from 47.2 in September. That's still below 50 points and the eighth straight month of contraction.

The official government data, which was released Sunday, shows manufacturing activity unchanged in October at 49.8, also below the 50 points that marks the midpoint between a contraction and growth. Taken together, the data added to concerns about China's oil demand growth which has been a major worry in the global oil market.

China's oil demand declined 2.1% in September year-over-year, said a Barclays Capital report, adding that "Fundamentals suggest moderate demand ahead."

Meantime, Russian oil production exceeded a post-Soviet record for the fourth time this year. Russia's crude oil and condensate output rose 36,000 barrels per day or 1.6% to 10.78 million bpd in October, while exports also jumped 14.7% to 4.69 million bpd, the highest in seven years, the energy ministry announced Monday.

Iran is also expected to outline its plans to raise output further next year to the Organization of Petroleum Exporting Countries after implementing the July 14 nuclear deal with six world powers including the United States. OPEC output rose 74,000 bpd to 32.211 million bpd in October, Bloomberg News said, well above the group's 30.0 million bpd quota.

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