Brent Falls as China Concerns Erase Gains From Ukraine Crisis

Brent crude fell as market concern over weak demand in China and high stockpiles in the U.S., the two biggest energy consumers, outweighed investor worries that fighting in the Ukraine may disrupt European supplies. West Texas Intermediate pared gains in New York.

Futures rose as much as 0.3 percent in earlier trading after gaining on May 2 as Ukraine sent armored vehicles and artillery to retake the city of Slovyansk, a stronghold for pro-separatist forces. Four Interior Ministry troops were killed and 30 wounded in fighting, the ministry said. A final reading of the China Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 48.1 for April, a fourth monthly contraction that missed the median estimate of 48.4 in a Bloomberg News survey of economists.

“U.S. inventories are at highs, and disappointing data from China is adding concern over whether demand is really there,” Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen, said today by phone. “That’s bringing the price back down, and the market is really struggling to do anything at the moment. It will take quite a bit more for a lasting rise in the market, given everything else that’s going on.”

Brent for June settlement fell as much as 40 cents, or 0.4 percent, and was at $108.28 a barrel on the London-based ICE Futures Europe exchange at 1:44 p.m. local time. The contract climbed 86 cents to $108.98 on April 29. U.K. offices are closed today for a May Day holiday.

WTI for June delivery was up 30 cents, or 0.3 percent, at $100.06 a barrel in electronic trading on the New York Mercantile Exchange, after rising as much 68 cents. The U.S. benchmark crude was at a discount of $8.20 to Brent. The spread narrowed for the first day in five after closing on May 2 at $8.83.

Chinese Economy

HSBC and Markit’s PMI is below a preliminary reading of 48.3 and compares with 48 for March. Figures below 50 indicate contraction. An official gauge of China’s factory output reported last week was at a lower-than-projected level of 50.4.

China, the world’s second-largest oil consumer, will account for about 11 percent of global demand this year, compared with 21 percent for the U.S., according to forecasts from the International Energy Agency in Paris.

“The overall feeling about China is that things are still looking soft,” Jonathan Barratt, the chief executive officer of Barratt’s Bulletin in Sydney, said by phone today.

Sanctions Threatened

Ukraine sought to expel rebels from its eastern industrial heartland as violence also spread to the Black Sea gateway of Odessa. The conflict is “due to Russian aggression and due to Russian-led protesters,” Prime Minister Arseniy Yatsenyuk said on BBC.

The European Union and the U.S. say the government in Moscow hasn’t lived up to an accord signed on April 17 intended to defuse the crisis and have threatened sanctions on Russian industries. Russia is the world’s second-biggest net oil exporter and supplied 30 percent of Europe’s natural gas last year, data from the U.S. Energy Information Administration show.

In Libya, the holder of Africa’s largest crude reserves, production slid after protesters demanding more pay shut oilfields in the country’s central Sirte region. Output was at 260,000 barrels a day, down from 300,000 barrels on May 2, Mohamed Elharari, a spokesman at National Oil Corp., said yesterday.

Hedge funds and other money managers reduced net-long positions on WTI for a second week, according to the U.S. Commodity Futures Trading Commission. Bets that prices will rise, in futures and options combined, increased by 0.5 percent in the seven days through April 29, the Washington-based regulator said in its weekly report. Short positions expanded by 19 percent, the most in more than a month.