WTI Drops a Second Day on Concern China Demand May Slow

West Texas Intermediate’s discount to Brent traded at its narrowest since October, as cold weather and the start of a new pipeline supported U.S. prices, while slowing Chinese economic growth undermined Brent.

WTI was little changed. A winter storm is threatening to drop snow, ice and sleet from Utah to Pennsylvania, including as much as 8 inches (20 centimeters) in New York City. Brent, a global crude benchmark, fell as a Chinese Purchasing Managers’ Index in January dropped to a six-month, indicating that government efforts to rein in excessive credit in the world’s second-largest oil consumer will cool growth.

“The Chinese economy is slowing, in line with the new economic policy, adding pressure to most commodities this morning including oil,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “The ongoing cold snap” in the U.S. is supporting demand for heating fuel there, he said.

WTI for March delivery was up 15 cents at $97.64 a barrel in electronic trading on the New York Mercantile Exchange as of 12:40 p.m. London time. Brent’s premium to WTI contracts on the ICE Futures Europe exchange was at $8.48 a barrel, the least since Oct. 18 on an intraday basis. The spread settled at $8.91 on Jan. 31.

Brent for March settlement decreased as much as 70 cents, or 0.7 percent, to $105.70 a barrel on the London-based ICE Futures Europe exchange, the lowest intraday level since Jan. 17. The volume of all futures traded was about 20 percent above the 100-day average.

Brent Benchmark

Brent, which is used to price more than half of the world’s crude and, unlike WTI, can be shipped to ports overseas, is often more sensitive than the U.S. marker to changes in the global balance of supply and demand.

China’s manufacturing PMI, which matched the median analyst estimate in a Bloomberg News survey, fell from 51 in December as output and orders slowed, data from the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Feb. 1 showed. Borrowing costs are rising as the nation’s leaders clamp down on the $6 trillion shadow-banking industry. Today’s non-manufacturing PMI dropped to 53.4 in January from 54.6.

“Oil is joining other commodities in being a bit nervous about softer figures in China,” said Ric Spooner, a chief analyst at CMC Markets in Sydney who predicts investors may buy WTI contracts at about $95 a barrel. “Although the PMI figures were in line with expectations, when you got down into the detail, it included a weaker manufacturing labor market.”

Keystone Pipeline

Markit Economics will release a final PMI for the U.S. today, while the Institute for Supply Management publishes its factory index. In the 18-nation euro area, the manufacturing gauge is projected to remain at 53.9 for January, while countries including Germany and France report final readings for the same month.

WTI was also buoyed by flows through TransCanada Corp.’s Keystone XL pipeline from the U.S. storage hub in Cushing Oklahoma, to Texas, according to VTB’s Kryuchenkov. The line began deliveries on Jan. 22.

WTI rose 0.9 percent last week as freezing weather boosted demand for heating fuel in the U.S., the world’s largest oil consumer. Money managers increased net-long positions, or wagers on rising prices, on futures and options by 13 percent in the week ended Jan. 28, the most since July, Commodity Futures Trading Commission data show.

Hedge funds and other money managers raised net bullish bets on Brent crude by the most in more than a month, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 98,271 lots in the week ended Jan. 28, the London-based exchange said today in its weekly Commitments of Traders report. The increase of 7,956 contracts, or 8.8 percent, is the biggest since Dec. 24 and brings net-long positions to their highest since Jan. 7.

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

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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