Brent at Three-Week Low as China Manufacturing Shrinks

Brent crude dropped for a third day, to its lowest intraday price in three weeks as manufacturing in China shrank and U.S. gasoline stockpiles increased.

Futures slid as much as 1.5 percent in London to the lowest since May 2. A preliminary reading of China’s Purchasing Managers Index dropped to 49.6 for May, the least since October and missing estimates. Gasoline inventories rose 3 million barrels last week, the Energy Information Administration reported yesterday. Federal Reserve Chairman Ben S. Bernanke signaled the central bank may reduce monthly bond purchases.

“The China statistics paint a slightly weaker picture of the demand side,” said Bjarne Schieldrop, chief commodity analyst at SEB AB in Oslo. “We are in the seasonally softest part of the year for demand.”

Brent for July settlement declined as much as $1.54 to $101.06 a barrel on the ICE Futures Europe exchange, and traded for $101.69 as of 12:49 p.m. London time. The European benchmark grade was at a premium of $8.53 to West Texas Intermediate futures. The spread widened for the first time in five days to $8.32 yesterday.

China Factories

WTI for July delivery fell as much as $1.61 to $92.67 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday price since May 15, and was at $93.17 as of 11:10 a.m. London time. The volume of all contracts traded was 28 percent above the 100-day average.

The China manufacturing index for May released today by HSBC Holdings Plc and Markit Economics showed the first contraction in seven months. It’s below a median estimate of 50.4 in a Bloomberg survey of economists, which was also the final measure for April. A reading above 50 indicates expansion.

China is the world’s second-largest oil consumer, accounting for 11 percent of global demand in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy. The U.S. is the biggest user at 21 percent.

“China’s PMI data coming in below forecast is adding a strong downdraft across most commodity markets today,” said Mark Keenan, a director of commodities research and strategy at Societe Generale SA in Singapore. “The comments from the Fed, hinting at the scaling back of quantitative easing if the economy improves further, have driven the dollar higher, which is also contributing to the general weakness. These factors are driving oil prices lower today.”

Bernanke said yesterday the Fed may taper its $85 billion a month of purchases if confident of a sustained improvement in the U.S. economy. The Dollar Index was little changed after almost reaching a three-year high today.

Crude Supplies

While U.S. commercial crude inventories have shrunk in the past two weeks, stockpiles remained near the highest level since at least 1931, according to the EIA, the Energy Department’s statistical arm.

Supplies at Cushing, Oklahoma, the delivery point for WTI contracts and the biggest U.S. storage hub, rose 449,000 barrels to 50.2 million last week, the report showed. That’s the highest in a month.

“Stockpiles are very high and have been that way for a very long time,” said David Lennox, an analyst at Fat Prophets in Sydney. “We’re coming up to the driving season, and one would expect to see significant drawdowns going forward.”

The U.S. Memorial Day holiday on May 27 marks the start of the country’s peak summer gasoline demand period.

Gasoline production climbed 285,000 barrels a day to 9.21 million last week, the fastest rate this year, the EIA data show. Distillate-fuel inventories, including heating oil and diesel, dropped 1.1 million barrels. They were projected to increase 1 million barrels, according to the median estimate of 11 analysts surveyed by Bloomberg.

WTI’s decline may slow as futures approach technical support along the middle Bollinger Band on the 30-day chart, according to data compiled by Bloomberg. This indicator, at around $93.07 a barrel today, is near where prices rebounded last week. Buy orders tend to be clustered close to chart-support levels.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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