Brent Falls Below $100 on Oversupply Risk as China Slows

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

Brent was little changed after dropping as much as 0.7 percent to $99.66 a barrel. Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy of the world’s second-biggest consumer of oil. The Organization of Petroleum Exporting Countries kept its output ceiling of 30 million barrels a day at a meeting in Vienna on May 31. JPMorgan Chase & Co. reduced its Brent price forecast.

“There’s a fear that there could be oversupply given the weakening signs from China,” Thina Saltvedt, an Oslo-based analyst at Nordea Bank AB, said by phone. “OPEC basically said with its quota decision that it is betting demand picks up during the summer driving season.”

Brent for July settlement was at $100.86 a barrel, up 47 cents, on the ICE Futures Europe exchange at 10:43 a.m. London time. It last traded below $100 on May 2. Prices slid 2.2 percent last week and 1.9 percent in May.

West Texas Intermediate for July delivery was at $92.07 a barrel, up 10 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 $8.81 to WTI futures, compared with $8.42 on May 31.

Reduced Forecast

JPMorgan 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 today, signaling 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.

Rhine Closing

Barge traffic for the shipment of refined oil products along the upper Rhine River will be halted until at least Wednesday after heavy rains, Joachim Hessler, an operations manager at Maintank Schiffahrtsgesellschaft in Germany, said today by phone.

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. The group, which supplies about 40 percent of the world’s oil, is pumping about 1 million barrels a day more than the target.

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.

“The fact remains that OPEC is producing too much crude,” Bjarne Schieldrop, chief commodity analyst at SEB AB, said by phone from Stockholm. “As long as they don’t cut production, it will pull down prices.”

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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