Oil Near Two-Day Low After China PMI Expands Less Than Forecast

Oil traded near the lowest close in two days after Chinese manufacturing expanded less than forecast, signaling a possible decline in the country’s crude consumption.

Front-month futures were little changed after dropping for the first time in seven days. China reported April manufacturing output that climbed less than forecast. U.S. crude stockpiles rose 2.5 million barrels last week to 375.5 million, according to a Bloomberg News survey before data from the Energy Department tomorrow. That would bring supplies to the highest level since September 1990. Prices slid yesterday as Spain entered its second recession since 2009.

“Chinese demand for crude was very strong in early months of the year, around 9.75 million barrels a day, and we would expect that to come off a little bit in the coming months,” Nic Brown, head of commodities research at Natixis Commodity Markets Ltd., said in an interview with Linzie Janis and Owen Thomas on Bloomberg Television’s Countdown program. Brown said $110 is about fair value for Brent crude.

Crude for June delivery was at $104.76 a barrel, down 11 cents, on the New York Mercantile Exchange at 1:26 p.m. London time. The contract yesterday fell 6 cents to $104.87, the lowest close since April 26. Prices gained 1.8 percent last month and are 5.9 percent higher this year.

Brent oil for June settlement was at $119.08, 39 cents lower, on the London-based ICE Futures Europe exchange. The European benchmark contract’s front-month premium to WTI was at $14.33, compared with $14.60 yesterday.

Ample Stockpiles

China’s Purchasing Managers’ Index for manufacturing climbed to 53.3 in April, the country’s statistics bureau and logistics federation said in a statement today. That’s below the median 53.6 estimate in a Bloomberg News survey of 27 economists. A reading above 50 points indicates that the manufacturing economy is generally expanding.

“The Chinese economy is not growing as fast as people had expected, so some of the stocks that would have been accumulated in the start of the year will probably be weighing on the market,” Brown said. “If you get something of a weakening in Chinese demand, which I think is entirely reasonable in the months ahead, that would take some of the pressure off the oil market.”

U.S. gasoline supplies probably slipped 1 million barrels to 210.7 million last week, according to the median estimate of nine analysts surveyed by Bloomberg News. It would be the 11th straight drop, capping the longest stretch of declines in a year. Inventories of distillate fuel, a category that includes heating oil and diesel, increased 500,000 barrels to 126.4 million barrels last week, the survey shows.

Summer Demand

“We often see a build at this time, particularly in the refined products as refineries and supplies prepare for the summer demand season,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney. “The oil market is on hold ahead of the manufacturing readings that we’re going to see around the globe, starting today.”

The Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington. The industry-funded American Petroleum Institute will report its own data today.

Spain’s gross domestic product fell 0.3 percent, the same as in the previous three months, the Madrid-based National Statistics Institute said yesterday. The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth in the euro region.

Delta Airlines

The countries using the euro accounted for about 12 percent of global oil demand in 2010, according to BP Plc’s Statistical Review of World Energy. The U.S. was the biggest crude user, responsible for 21 percent of world consumption.

Delta Air Lines Inc. yesterday agreed to buy a refinery from ConocoPhillips, breaking with U.S. carriers’ tradition of not owning their own fuel assets.

After $30 million in state government assistance, Delta is paying $150 million for the complex in the Philadelphia suburb called Trainer, the world’s second-largest carrier said yesterday in a statement. Production at the refinery combined with multiyear agreements to exchange other products for jet fuel will provide 80 percent of Delta’s needs in the U.S.

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