Oil Drops Fifth Day in Six as China Slowdown Seen Hurting Demand

  • OPEC trims estimates for rivals' output as shale boom reels
  • WTI, Brent contract spread narrows to least since January

Oil dropped in New York for the fifth time in six days as concern that China’s slowdown will deepen added to worries that the global oversupply will continue through most of next year.

West Texas Intermediate futures declined 1.4 percent. China’s industrial output missed economists’ forecasts and investment in the first eight months rose at the slowest pace since 2000, data showed this weekend. The spread between WTI and Brent slipped to the least since Jan. 22 as Morgan Stanley analysts led by New York-based Adam Longson said U.S. oil market fundamentals are healthier than elsewhere.

Oil is down almost 30 percent from its closing peak in June. The International Energy Agency predicts crude stockpiles won’t diminish until the second half of next year, and said even that forecast might be derailed if Iran can boost exports after the removal of sanctions. OPEC trimmed estimates for supplies from outside the group in 2016 as the slump in prices takes its toll on the U.S. shale-oil industry.

“We had another set of disappointing economic data out of China, which is raising concern that demand will slacken,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “This adds to the feeling that global oversupply will persist.”

WTI for October delivery fell 63 cents to settle at $44 a barrel on the New York Mercantile Exchange. It was the lowest close since Aug. 27. The volume of all futures traded was 8.7 percent below the 100-day average.

Global Supply

Brent for October settlement, which expires Tuesday, fell $1.77, or 3.7 percent, to end the session at $46.37 a barrel on the London-based ICE Futures Europe exchange. The more-active November contract slid $1.69 to $47.35. The discount on the front-month expanded to 98 cents, the widest at closing since June 15. The European benchmark oil closed at a $2.37 premium to WTI.

Traders predict a 30 percent chance that the Fed will raise borrowing costs at its Sept. 16-17 meeting, down from more than 50 percent before China’s currency devaluation in August raised concern about growth.

“We’re fading with the stock market after weak Chinese data,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. “Volume is light right now because we’re all waiting for the Fed data.”

OPEC Estimates

The Organization of Petroleum Exporting Countries cut 2016 estimates for non-OPEC output by 110,000 barrels a day, its Vienna-based secretariat said Monday in its monthly market report. Supplies will increase by 160,000 barrels a day to 57.6 million next year.

Goldman Sachs Group Inc. said Friday that a growing surplus could deflate prices to $20 a barrel. While that’s the bank’s base-case scenario, a failure to curb output fast enough may require prices to drop near that level to drain oversupply, according to the report e-mailed Friday that also trimmed its Brent and WTI crude forecasts through 2016. U.S. shale is the most likely near-term source of cuts, Goldman said.

Drillers in the U.S. idled rigs for a second week, reducing the number of active machines by 10 to 652, Baker Hughes Inc. said Friday. The nation’s output declined for a fifth week to average 9.14 million barrels a day, the Energy Information Administration said Thursday.

Balanced Market

“Production is coming down pretty quickly in the U.S.,” Francisco Blanch, Bank of America Corp.’s head of commodities research in New York, said in an interview with Bloomberg TV and Radio. The oil market should be “balanced by the end of the year."

OPEC has pumped above its quota for more than a year. Iraq, the group’s second-biggest member, produced 3.76 million barrels a day in August, up from 3.7 million in July, according to an e-mailed statement from the state oil marketing company known as SOMO.

Hedge funds added the most bullish oil bets since April in both WTI and Brent in the week to Sept. 8.

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