Crude falls on weak China data, worry over eurozone debt crisis

03 October 2011 10:20  [Source: ICIS news]

SINGAPORE (ICIS)--Crude futures fell by more than $1/bbl on Monday, undermined by ongoing worries about eurozone’s sovereign debt crisis, and with recent data showing weakness in China’s manufacturing sector.

At 08:22 GMT, November Brent crude on London’s ICE futures exchange was trading at $101.95/bbl, down by 81 cents/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $101.12/bbl, down by $1.64/bbl.

November NYMEX light sweet crude futures (WTI) were at $78.12/bbl, down by $1.08/bbl from the previous close. Earlier, the contract price fell to an intra-day low of $77.36/bbl, down by $1.84/bbl.

ICE Brent crude prices are trading at their lowest level since mid-February 2011, prior to the Libyan conflict, while WTI values are at levels last seen in late-September 2010.

Recent data from China showed the country's manufacturing sector contracted for the third consecutive month. HSBC’s purchasing managers index (PMI) for September was calculated at 49.9 for September, unchanged from August. HSBC said the soft figures indicated a cooling in industrial activity – a lag effect of China's credit tightening.

But China’s economic growth, although off from previous highs, is expected to remain strong in the coming years at 8.5-9.0% per annum, HSBC said.

Meanwhile, the US dollar strengthened against the euro and other leading currencies on Monday, making crude less attractive to international buyers. Equity markets also weakened, with the Nikkei 225 Index in Japan down 1.78%.

The euro and equity markets declined on expectations that Greece will be unable to hit its deficit targets set by the European Union (EU) and the International Monetary Fund (IMF). The Greek government announced on Monday that its deficit for 2011 is projected to be 8.5% of GDP, which although down from the 10.5% figure for 2010 is still above the 7.6% target set by the EU and IMF.

Meanwhile, Shell confirmed on Sunday that it had declared force majeure on some customers in Asia following the unscheduled shutdown of its 500,000 bbl/day Bukom refinery in Singapore, following a fire last week. The move was understood to have impacted mostly distillate cargoes, and in particular gasoil barrels, for loading in late September and early October.

Concerns over tight prompt supplies due to the shutdown have pushed the forward curve for gasoil swaps into steep backwardation for the front months, with October-November intermonth spread at around $1.25/bbl. Prior to the fire at Shell’s Bukom refinery, the same spread was just at around 30 cents/bbl.

The crack spreads between Dubai and Singapore gasoil swaps also widened on supply worries. Crack spreads indicate relative profit margins for refiners.

Shell was also heard to have cancelled the lifting of some 4m barrels of Arab light crude from Saudi Arabia for loading in October due to the Bukom refinery outage. The outage is expected to have a negative impact on the physical crude market depending on the length of the shutdown.

($1 = €0.75)

By: James Dennis
+65 6780 4359

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