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Oil Declines From Two-Week High as China Manufacturing Contracts

Oil dropped from the highest closing price in almost two weeks as manufacturing unexpectedly contracted in China and crude production resumed in the Gulf of Mexico after Hurricane Isaac.

Futures fell as much as 0.5 percent in New York after the biggest monthly gain since October. China’s Purchasing Managers Index shrank for the first time in nine months in August, a government survey showed Sept. 1. A separate measure by HSBC Holdings Plc and Markit Economics today showed the fastest contraction since March 2009. China is the world’s second biggest oil user. About 72 percent of daily crude output in the Gulf of Mexico is shut, from as much as 95 percent last week, the U.S. Bureau of Safety and Environmental Enforcement said.

“The primary reason is the reaction to the PMI figure in China,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The general run of indicators in recent months has shown an easing in the Chinese economy and the manufacturing sector in particular.”

Crude for October delivery slid as much as 46 cents to $96.01 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.20 at 2:46 p.m. Singapore time. The contract rose 2 percent on Aug. 31 to $96.47, the highest level since Aug. 22. Prices climbed 9.6 percent in August for a second monthly gain and are down 2.7 percent this year.

Brent oil for October settlement decreased 37 cents to $114.20 a barrel on the London-based ICE Futures Europe exchange. Prices advanced 9.2 percent last month. The European benchmark grade’s premium to West Texas Intermediate was at $18, compared with $18.10 on Aug. 31.

Uptrend Channel

Floor trading in New York will be closed for the U.S. Labor Day holiday today. Electronic trading will halt from 1:15 p.m. to 6 p.m. local time before resuming, exchange owner CME Group Inc. said on its website.

New York oil has technical support at $95.76 a barrel, along the bottom of an uptrend channel on the daily chart, according to data compiled by Bloomberg. This channel started from the 2012 intraday low of $77.28 on June 28. Buy orders tend to be clustered near chart-support levels.

China’s Purchasing Managers Index fell to 49.2 in August from 50.1 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Sept. 1. The figure was below the estimates of 24 of the 25 analysts in a Bloomberg survey. The final reading for the HSBC and Markit Economics report fell to 47.6 from a preliminary figure of 47.8 provided Aug. 23. The dividing line between expansion and contraction for both surveys is 50.

Gulf Output

Oil also fell amid signs of increasing supply. Production in the Gulf of Mexico from undamaged platforms will resume immediately after checks have been completed, the BSEE said on its website. The equivalent of about 986,698 barrels a day of oil and 56 percent of daily gas output was offline as of 12:30 p.m. New York time yesterday, it said.

Crude shipments from Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, rose for a fourth month in August, according to Falah al-Amri, the head of the State Oil Marketing Organization. Exports increased 2 percent to 2.57 million barrels a day from July, he said on Sept. 1 from Baghdad.

OPEC production slipped 75,000 barrels to an average 31.988 million barrels a day last month from a revised 32.063 million in July, according to a Bloomberg survey of oil companies, producers and analysts. Output in Iran fell 350,000 barrels to 2.75 million barrels a day, the lowest level since February 1990. Saudi Arabia, the biggest producer in OPEC, pumped 9.9 million barrels a day, unchanged from July.

Net-long positions in oil held by money managers, including hedge funds, commodity pools and commodity trading advisers, in the seven days ended Aug. 28 advanced 7.2 percent, to 192,471 futures and options combined, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Aug. 31.

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