Oil Falls to Six-Week Low on China Slowdown, Supply Surge

Oil traded near a six-week low after U.S. stockpiles climbed the most since March, Chinese manufacturing shrank and Japanese exports fell, signaling fuel demand may be slowing among the world’s biggest crude users.

Futures were little changed after declining as much as 1.4 percent. U.S. oil inventories surged 8.5 million barrels last week as Gulf of Mexico production resumed after Hurricane Isaac, Energy Department data showed yesterday. China’s manufacturing may contract an 11th month, according to a purchasing managers index by HSBC Holdings Plc and Markit Economics. Japan’s overseas sales fell a third month in August, the Finance Ministry said.

“China is still growing at reasonable levels, but the sky-rocketing growth rates seen in the past couple of years looks to be over,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts Brent crude will remain at $107 to $108 a barrel next week. “China still has a lot of economic tools left compared to the west, so I expect a soft or orderly landing to have the best odds.”

Oil for October delivery slid as much as $1.32 to $90.66 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Aug. 6, and was at $91.68 at 1:31 p.m. London time. The contract, which expires today, slid $3.31 yesterday to $91.98, the lowest close since Aug. 3. The more-active November future was at $92.04 a barrel, down 0.3 percent. Front-month prices are 7.3 percent lower this year.

Brent oil for November settlement rose 51 cents to $108.72 a barrel on the London-based ICE Futures Europe exchange. The front-month European benchmark grade’s premium to the corresponding West Texas Intermediate contract was at $16.68 a barrel. It narrowed to as little as $15.58, the lowest on an intraday basis since July 26.

China, Japan

China’s purchasing managers index had a preliminary reading of 47.8, compared with a final 47.6 in August. That puts the gauge on track for the longest run below 50, the dividing line between expansion and contraction, in the survey’s eight-year history. Japan’s exports fell 5.8 percent in August from a year earlier.

The gain in U.S., crude inventories was the biggest since March 30 and compared with a forecast increase of 1 million barrels in a Bloomberg News survey. Stockpiles climbed to 367.6 million barrels, a six-week high. Imports advanced 15 percent to 9.85 million barrels a day and production rose 14 percent to 6.28 million a day.

“We saw that significant increase in crude inventories in the U.S., and that’s probably because the Gulf platforms are coming back on-stream post Isaac,” said David Lennox, an analyst at Fat Prophets in Sydney. “There is still some weakness in the demand side of the equation.”

Fuel Supplies

While total U.S. crude stockpiles gained, inventories at Cushing, Oklahoma, the delivery point for the West Texas contract traded on Nymex, declined for a second week by 274,000 barrels to 43.8 million, the lowest level since April.

Stockpiles of gasoline and of distillate fuel, a category that includes heating oil and diesel, declined. Refinery operating rates rose to 88.9 percent from the previous week’s 84.7 percent as plants resumed units idled when Hurricane Isaac made landfall on Aug. 28.

The U.S., China and Japan accounted for about 37 percent of the world’s oil consumption last year, according to BP Plc’s Statistical Review of World Energy.

The International Energy Agency considers oil markets to be sufficiently supplied, Executive Director Maria Van Der Hoeven said in Madrid today, echoing comments by OPEC Secretary-General Abdalla Salem El-Badri in a speech yesterday.

The Organization of Petroleum Exporting Countries’ spare production capacity is at “comfortable levels,” and commercial inventories “remain healthy,” El-Badri said at the European Mineral Resources Conference in Leoben, Austria, according to a transcript on OPEC’s website.

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