Brent Crude Falls Below $100 on Oversupply Risk as China Slows

Brent crude fell below $100 a barrel for the first time in a month and WTI declined as signs of a slowing Chinese economy and OPEC’s decision to maintain production boosted speculation supply will outstrip demand.

Brent slid as much as 0.7 percent to $99.67 a barrel, while WTI dropped as much as 0.8 percent. Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy of the world’s second-biggest oil user. The Organization of Petroleum Exporting Countries maintained its output ceiling of 30 million barrels a day at a meeting in Vienna on May 31. Crude inventories in the U.S., the world’s biggest consumer of the commodity, are at the highest since at least 1931.

“We’re in the situation where the market is vulnerable to downside risk because of the supply situation with a well-covered market,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney.

Brent oil for July settlement was at $99.68 a barrel, down 71 cents, on the London-based ICE Futures Europe exchange at 3:31 p.m. Singapore time. It last traded below $100 on May 2. Prices slid 2.2 percent last week and 1.9 percent in May.

WTI for July delivery was at $91.40 a barrel, down 57 cents, in electronic trading on the New York Mercantile Exchange. Prices dropped 2.3 percent last week and 1.6 percent in May. Brent was at a premium of $8.28 to WTI futures, compared with $8.42 on May 31.

Reduced Forecast

JPMorgan Chase & Co. cut its forecast for Brent to an average of $113 a barrel in the third quarter, from $120 previously, according to a report e-mailed today. The bank reduced its outlook for the three months ended December to $117 from $120, and for 2014 to $117.50 from $122.50.

WTI is poised to extend losses after failing to breach chart resistance for a second day, according to data compiled by Bloomberg. Futures on May 31 halted an intraday advance below the middle Bollinger Band, around $94 a barrel today, signaling it’s where sell orders may be clustered. Crude’s moving average convergence-divergence indicator also fell below zero for the first time in a month, showing a loss of technical momentum.

China’s official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

Shale Study

Most OPEC member states expressed their support for crude at about $100 a barrel last week. Some, including Venezuela, voiced concern that excessive production by other members will curb prices. OPEC is pumping about 1 million barrels a day more than the target.

The group signaled growing unease with the U.S. oil boom by starting a study into shale at its meeting. A committee will consider the effect of shale oil on the global market for OPEC crude “in the not-too-distant future,” said Diezani Alison-Madueke, Nigeria’s petroleum minister.

U.S. crude output rose 34,000 barrels to 7.29 million a day in the week ended May 24, according to data from the Energy Information Administration, the Energy Department’s statistical arm. Production reached 7.37 million barrels a day in the week ended May 3, the most since February 1992. Output has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations.

‘Dangerous Road’

OPEC will next gather on Dec. 4. The 12-nation group’s production has fluctuated from 30.6 million to 32.4 million barrels a day since its current target was introduced in December 2011, data compiled by Bloomberg show. Daily output was 31.03 million in May, the most in six months, with Saudi Arabia pumping 9.35 million, according to the data.

“Prices have fallen but the prices are still where the Saudis would want them to be,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said yesterday. “The Saudis would have made the argument to some of the others who were asking for a cut that that’s a dangerous road to go down because once you start cutting and try to keep prices artificially high you just put yourself in a more dangerous situation. You just encourage competition.”

Hedge funds reduced bullish WTI crude bets by the most in six weeks, according to the Commodity Futures Trading Commission’s May 31 Commitments of Traders report. Money managers cut net-long positions, or wagers on higher prices, by 6.2 percent in the week ended May 28. It was the largest drop since the seven days ended April 16.

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