Brent Trades Near Three-Week Low on China Growth Concern

Brent crude traded near its lowest level in three weeks after slipping below $100 a barrel amid speculation that a cash crunch may restrain economic growth in China, the world’s largest energy user.

Brent was little changed, having slumped 4.7 percent last week, the biggest loss since April. The People’s Bank of China said the nation should fine-tune its policies as a cash squeeze in the banking system risks exacerbating an economic slowdown. The U.S. and 10 other countries pledged June 22 to increase support for rebel forces in Syria. Hedge funds and other large speculators boosted net-long positions in Brent and West Texas Intermediate crude last week.

“All of a sudden, demand concerns are back in focus and nobody is speaking about supply risks anymore,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. The bank forecasts that Brent will average $105 during the next quarter. “China’s economy seems to be slowing down further,” he said.

Brent for August settlement was at $100.63 a barrel, 28 cents lower on the ICE Futures Europe exchange at 1:52 p.m. London time, after temporarily dropping below $100 for the first time since June 3. The European benchmark grade was at a premium of $7.06 to West Texas Intermediate compared with $7.22 on June 21.

WTI for August delivery was 12 cents lower at $93.57 a barrel electronic trading on the New York Mercantile Exchange, having slid as much as $1.02 to $92.67 a barrel. The contract lost $1.45 on June 21 to settle at $93.69, the lowest close since June 4.

Macro Sentiment

“Macro sentiment and fund flows continue to be a challenge for price appreciation” for Brent prices, Adam Longson, an analyst Morgan Stanley in New York, said in a report. The bank predicts that the spread between Brent and WTI may struggle to converge further than $6 a barrel.

China’s manufacturing will shrink at a faster pace this month, a preliminary indicator showed last week. The country is also the world’s second-largest oil consumer, accounting for 11 percent of global demand in 2012, according to BP Plc’s Statistical Review of World Energy. The U.S. is the biggest user at 21 percent.

Liquidity Crunch

“What prompted the fine-tuning comment was this liquidity crunch in China, which is bearish for crude,” said Victor Shum, the vice president at IHS Energy Insight, a consultant in Singapore. “The geopolitics provide some support to oil while most economic factors point downwards.”

U.S. Secretary of State John Kerry and foreign ministers from nations including Saudi Arabia, Egypt, France and Germany adopted a joint statement on June 22 after a meeting in Doha to allow “each country in its own way” to aid the Syrian rebels. The lack of public agreement on a military strategy for aiding the Syrian opposition battling the regime of President Bashar al-Assad underscored divisions within the informal coalition.

Energy traders monitor fighting in Syria in case the conflict spills over into other Arab oil-exporting nations.

“That Middle Eastern premium should go” after the victory of President-elect Hassan Rohani in Iran, said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney, who predicted investors may buy WTI contracts around $92.50 a barrel.

Bearish Crossover

WTI’s moving average convergence-divergence indicator slid below its signal line on June 21, according to data compiled by Bloomberg. Investors typically sell contracts on a so-called bearish MACD crossover. Crude fell to its 200-day moving average on May 23 a day after a similar chart pattern. The 200-day mean is at about $92.30 a barrel today.

Hedge funds boosted net-long position on WTI by 13 percent in the week ended June 18, according to the U.S. Commodity Futures Trading Commission. Managed money bets that prices will rise, in futures and options combined, outnumbered short positions by 262,239 futures, the Washington-based regulator said in its weekly report on June 21.

Money managers raised bullish bets on Brent crude to their highest level in four months, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 185,653 lots in the week ended June 18, the London-based exchange said today in its weekly Commitments of Traders report. The increase of 25,620 contracts, or 16 percent, is the biggest jump in percentage terms since Jan. 29 and brings Brent net-long positions to the highest since Feb. 19.

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