Oil prices fell today after data from China showed factory output grew at its slowest pace in 28 months, raising concerns about sluggish fuel demand from the world's second largest importer, while the market also kept an eye on the progress of reserve oil stocks sales by IEA member states.
Although the moderation in activity did not point to a sharp drop-off in Chinese economic growth for now, the data was slightly worse than forecast, indicating the world's second-largest economy was feeling the pinch of monetary policy tightening and slack global demand.
ICE Brent crude fell 78 cents to $111.70 a barrel after falling nearly $1 earlier. Brent is on track to post a rise this week after two straight weekly losses. US crude was at $94.60 a barrel, down 82 cents.
China's official purchasing managers' index (PMI) fell to 50.9 in June from 52 in May, weaker than market expectations of 51.3. But it was the 28th straight month that the official PMI has stood above the threshold of 50 that demarcates expansion from contraction.
Global investors are unnerved by any signs of a slowdown in China, a key global growth engine as the US economic recovery loses momentum and Europe struggles with a sovereign debt crisis.
Still, most economists believe China, underpinned by its relentless urbanisation, is in no danger of a hard landing.
Investors are also watching how well the market can absorb a release of emergency oil stocks by the International Energy Agency as Germany, the Netherlands and the United States sought bids for their crude supplies in tenders.
The oil minister of Opec-member Ecuador does not see any long-term impact on the market from the IEA release.
"These strategic reserves can be compared to a pail of water in an Olympic pool," Wilson Pastor said.
The IEA has sent conflicting signals to the market this week. Some traders and analysts said the agency's planned 60 million barrel crude and oil product release has been badly coordinated outside the United States.
Opec's secretary general Abdullah al-Badri on Monday demanded an immediate halt to the IEA action designed to force down crude prices.
Opec oil output is expected to remain lower in June than before the conflict in Libya largely shut down its oil industry, despite extra supply from Saudi Arabia and other Gulf members.
Supply from all 12 members of the Organization of the Petroleum Exporting Countries is expected to average 29.45 million barrels per day (bpd) this month, up from a revised 29.1 million bpd in May.
But output may be lower than expectations. Industry sources said earlier in June that Saudi Arabia would boost production to almost 10 million bpd this month, but analysts said there was no sign yet of that much demand in the market.
Markets in the United States are shut on Monday for a national holiday.
Reuters
