Crude Drops Below $90 on Signs of Slowing Chinese Growth

West Texas Intermediate crude fell below $90 a barrel for the first time in 2013 as service industries in China expanded at the weakest pace in five months, adding to speculation that demand growth is slowing.

Prices dropped for the seventh time in nine days as the expansion of the non-manufacturing industry in China, the world’s largest oil-consuming country after the U.S., was the slowest since September. Futures ended below the front-month contract’s 200-day and 100-day moving averages for the first time since December. Open interest of WTI futures reached a record high on March 1 in New York.

“We have disappointing economic news out of China,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. He said $90 “is a critical level and we are poised to fall rather quickly down to $88.”

WTI for April delivery slid 56 cents, or 0.6 percent, to $90.12 a barrel on the New York Mercantile Exchange, the lowest settlement since Dec. 24. Prices fell to $89.33 in intraday trading. Volume was 19 percent below the 100-day average for the time of day at 2:39 p.m.

WTI has dropped 8.3 percent from this year’s high of $98.24 on Jan. 30 as demand forecasts weakened and rising production pushed U.S. inventories to 377.5 million barrels in the week ended Feb. 22, the most since July 20.

‘Further Worries’

The International Energy Agency on Feb. 13 trimmed forecasts for 2013 global oil demand for the first time in three months. The Paris-based agency reduced its demand forecast by 90,000 barrels a day.

“China brought further demand worries,” said Bill Baruch, a senior market strategist at in Chicago. “We broke a key technical level at $90 and the momentum is on the down side.”

Brent for April dropped 31 cents to settle at $110.09 a barrel on the London-based ICE Futures Europe exchange. Volume was 24 percent above the 100-day average. Brent’s premium over WTI widened for a third day to $19.97 as the entire Brent crude pipeline system remains shut for a third day after an oil leak was discovered on one of the platforms.

China’s non-manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said over the weekend. The index’s reading has been above 50, indicating expansion, for at least two years.

‘Not Good’

A gauge of new orders declined 1.9 points from January to 51.8, the weakest reading since October. The federation’s manufacturing PMI released March 1 dropped to 50.1, the weakest level in five months.

“If China is slowing, it’s not going to be good for the oil market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It’s a primary driver on the demand side of the equation. In the near term, all the pointers seem to be pointing toward weakness in the market.”

China accounted for 11 percent of the world’s oil consumption in 2011, according to BP Plc’s Statistical Review of World Energy. The U.S. used 21 percent.

“We are still waiting for strong economic growth and we don’t have signs of it,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Gasoline Futures

Crude also dropped with gasoline futures, which fell 1 percent as U.S. refiners wrapped up seasonal maintenance and prepared to restart plants.

Brent’s premium over WTI widened as production from the 27 North Sea oil fields that make up the Brent system is still shut as a result of the leak that was discovered March 2 on the Cormorant Alpha platform, according to the operator, Abu Dhabi National Energy Co. PJSC, known as Taqa.

The pipeline normally carries 90,000 barrels of oil a day, though 10,000 barrels a day was already offline following a similar incident at the same platform on Jan. 14.

“Brent is getting some support from the pipeline system that’s been shuttered,” McGillian said.

Electronic trading volume on the Nymex was 376,438 contracts as of 2:42 p.m. It totaled 524,395 contracts on March 1, 1.6 percent below the three-month average. Open interest was a record high 1.672 million contracts, according to CME Group data.