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Oil Falls to One-Month Low on China Manufacturing, Europe Debt

Oil fell to the lowest level in a month as Chinese manufacturing contracted and negotiations to resolve Greece’s debt crisis entered a third day, fanning concern that Europe’s economy will slow.

Oil declined 1.9 percent as the preliminary January reading of a Chinese purchasing managers’ index showed the country’s manufacturing declined for a third month. The euro weakened as talks in Athens on debt swaps resumed. Prices extended losses after sales of previously owned U.S. homes grew less than expected.

“We are reacting to the Chinese manufacturing index, which is weak,” said Phil Flynn, an analyst with PFGBest in Chicago. “The market is still worried about Greece and Europe. Oil demand is not coming back yet.”

Crude for February delivery dropped $1.93 to $98.46 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 20. The contract expired today. The more active March contract declined $2.21 to $98.33.

Brent oil for March settlement fell $1.69, or 1.5 percent, to settle at $109.86 a barrel on the London-based ICE Futures Europe exchange.

The reading of 48.8 in the Chinese index released by HSBC Holdings Plc and Markit Economics compares with a final 48.7 number for December. A reading below 50 shows contraction.

China is the world’s second-largest oil user, trailing only the U.S. The country used 9.06 million barrels a day last year, according to the BP Statistical Review of World Energy.

Greek Talks

Greece and private creditors are closing in on a debt-swap accord that’s crucial to cutting the country’s borrowings and allowing it to receive a second round of international aid.

An agreement with bondholders is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.

International Monetary Fund Managing Director Christine Lagarde said the world economy is decelerating and faces “significant and urgent challenges.”

The euro weakened against the dollar, falling as much as 0.4 percent to $1.292 at 2:51 p.m. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

“The correlation between oil and the dollar is high,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. “The market awaits news about the fate of Greece.”

Equities, Homes

Purchases of U.S. existing homes increased 5 percent to a 4.61 million annual rate, the National Association of Realtors said today in Washington. The median forecast of economists surveyed by Bloomberg News was 4.65 million.

Oil also followed losses in U.S. stocks as the Standard & Poor’s 500 Index dropped 0.4 percent.

“I see oil taking a direction from S&P and the dollar,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Petroleum demand in the U.S. remains weak as the country recovers from the financial crisis. U.S. gasoline consumption fell to 8 million barrels a day last week, the lowest level since September 2001, the Energy Department reported yesterday.

Stockpiles of the motor fuel climbed 3.72 million barrels to 227.5 million, a 10-month high. Regular gasoline at the pump, averaged nationwide, rose 0.4 cent to $3.382 yesterday, according to AAA data, up 8.6 percent from a year earlier.

U.S. Fuel Demand

“The fundamentals are still not looking good in the U.S.,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas.

U.S. fuel demand dropped to a 15-year low for the month of December as gasoline use fell, the American Petroleum Institute said today. Demand declined 5.9 percent from a year earlier to 18.6 million barrels a day last month, the industry-funded group said in a report.

Gasoline use in December dropped 4.3 percent from a year earlier to 8.53 million barrels a day. It was the lowest level of December use for the motor fuel in 13 years.

Oil volume in electronic trading on the Nymex was 596,786 contracts as of 2:41 p.m. in New York. Volume totaled 682,925 yesterday, 13 percent above the three-month average. Open interest was 1.35 million contracts.

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