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Brent Trades Near 11-Week High on China Factory Data

Brent crude traded near an 11-week high after a Chinese manufacturing gauge rose, signaling the economy of the world’s second-biggest oil consumer is stabilizing. West Texas Intermediate was near a four-week high after stockpiles fell.

Brent was little changed in London after advancing 0.8 percent yesterday. China’s preliminary Purchasing Managers’ Index was 49.7 for May, up from 48.1 the previous month and the highest reading this year, according to HSBC Holdings Plc and Markit Economics. Crude stockpiles in the U.S., the largest oil user, fell by 7.23 million barrels, or 1.8 percent, last week, the Energy Information Administration reported yesterday.

“China’s manufacturing is now only barely contracting” and today’s data are a welcome improvement, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by e-mail. “We remain cautious as to whether this is enough to give a significant boost to industrial commodities like oil.”

Brent for July settlement was at $110.58 a barrel, up 3 cents, on the London-based ICE Futures Europe exchange at 12:55 p.m. local time. It settled at $110.55 yesterday, the highest closing price since March 3. The European benchmark crude traded at a premium of $6.50 to WTI on ICE. The spread closed at $6.48 yesterday, the narrowest in a month.

WTI for July delivery was at $104.06 a barrel in electronic trading on the New York Mercantile Exchange, down 1 cent. Front-month futures climbed $1.63 to $104.07 yesterday, the highest close since April 21. The volume of all contracts traded was about 30 percent below the 100-day average for the time of day. Prices have gained 5.7 percent this year.

China Economy

HSBC and Markit’s PMI reading for China exceeded the median estimate of 48.3 in a Bloomberg News survey of economists. While it’s higher than the final April figure released May 5, it remains below 50, signaling a fifth month of contraction.

“The China PMI is positive at the margin, but the downside is that it makes any stimulus less likely,” Guy Wolf, global head of market analytics at Marex Spectron Group in London, said by e-mail. “Bears are looking for an implosion, bulls have been looking for stimulus. A data point such as this just hardens the status quo, which points to a continued slowdown.”

Stimulus Measures

Communist Party leaders are betting that measures such as tax breaks and accelerated spending on railways will help protect an economic growth target of 7.5 percent for 2014. The Asian nation will account for about 11 percent of global oil demand this year, compared with 21 percent for the U.S., forecasts from the International Energy Agency in Paris show.

U.S. crude inventories dropped to 391.3 million barrels in the week ended May 16, said the EIA, the Energy Department’s statistical arm. Supplies were projected to be unchanged near a record high, according to the median estimate in a Bloomberg survey of nine analysts.

“The oil market got surprised by the large decline in crude inventories,” which has “spread an optimistic tone” today, said Myrto Sokou, senior analyst at Sucden Financial Ltd. in London. “Oil demand has recently picked up in the U.S. economy.”

Gasoline inventories expanded by 970,000 barrels to 213.4 million last week, the EIA report shows. Distillates, including heating oil and diesel, were up 3.4 million barrels to 116.3 million.

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

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Rachel Graham, James Herron

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