Brent Tumbles Below $50 on Iran Plans, China Slowdown

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Signs Oil's Downtrend Is Coming to an End

Brent oil dropped below $50 a barrel for the first time since January as Iran vowed to boost production immediately after sanctions are lifted and manufacturing in China slowed.

Futures in London fell 5.2 percent, extending July’s 18 percent drop. Iran can raise output by 500,000 barrels a day within a week of sanctions ending, the state-run Islamic Republic News Agency reported. A Chinese private factory gauge released on Monday slipped to a two-year low in July, while an official index on Saturday dropped to a five-month low.

Crude slid into a bear market last month, joining a broader slide in commodities amid expanding supplies and signs of slower Chinese growth. Iran’s nuclear deal with world powers fueled speculation about when and by how much it will lift output. Sanctions against the nation should be lifted by late November, the Iranian Oil Ministry’s Shana news agency said.

“The quick recovery of the market is becoming more of a mirage,” Helima Croft, chief commodities strategist at RBC Capital in New York, said by phone. “Right now we’re in a race to the bottom. Oil producers are pumping what they can in the hopes that someone else will cut first.”

Brent for September settlement dropped $2.69 to end the session at $49.52 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since Jan. 29. Prices are more than 20 percent below this year’s high on May 6, meeting a common definition of a bear market.

Bottom-Seeking

West Texas Intermediate for September delivery fell $1.95, or 4.1 percent, to $45.17 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since March 19. Total volume was 33 percent above the 100-day average at 2:50 p.m. The U.S. benchmark crude closed at a $4.35 discount to Brent.

The Bloomberg Commodity Index of 22 raw materials dropped as much as 1.5 percent to the lowest level since February 2002.

“We’re in a commodity downdraft and it’s spreading to other asset classes,” Mike Wittner, head of oil market research at Societe Generale SA in New York, said by phone. “China, Iran and Greece were the triggers for the move down. We’re not paying much attention to Greece anymore but China and Iran are still in the forefront.”

Iran plans to double exports, IRNA reported, citing Oil Minister Bijan Namdar Zanganeh in an interview with state TV. The Islamic Republic produced an average of 2.85 million barrels a day last month, compared with 3.6 million at the end of 2011, according to estimates compiled by Bloomberg.

Iranian Payoff

BP Plc and Royal Dutch Shell Plc are among the energy companies that have expressed interest in developing Iran’s reserves, the world’s fourth-biggest, once sanctions are removed. Iran had the second-biggest output in OPEC before U.S.- led sanctions banned the purchase, transport, finance and insuring of its crude began July 2012.

“The biggest winner in OPEC over the past year is Iran,” Croft said. “‘They are getting a financial payoff as a result of the deal.’’

A China factory index for July released Monday by Caixin Media and Markit Economics came in at 47.8, a decline from 49.4 in June, indicating the effects of easier monetary policy have yet to kick in. The country’s official Purchasing Managers’ Index was 50 in July, down from 50.2 in the previous month. Numbers above 50 indicate expansion.

‘‘The Chinese data continues to look grim, which with the Iran headlines makes for a one-two punch for the oil market,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone.

Hedge funds reduced bullish bets on WTI to the lowest level in five years. The net-long position in WTI contracted 7 percent in the week ended July 28, U.S. Commodity Futures Trading Commission data show. Money managers cut their bullish stance on Brent during the same period by 37,527 contracts, the most in a year, according to data on Monday from ICE.

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