Forexpros – Crude oil futures came under heavy selling pressure during European morning hours on Thursday, falling to the lowest level since October after a gauge of manufacturing activity in China fell to a seven-month low and after the Federal Reserve decided against aggressive monetary stimulus.
In London, Brent oil prices fell to the lowest level since December 2010.
On the New York Mercantile Exchange, light sweet crude futures for delivery in August traded at USD80.14 a barrel during European morning trade, tumbling 1.6%.
It earlier fell by as much as 1.75% to trade at USD80.05 a barrel, the lowest since October 6.
Oil’s losses accelerated after data showed that China’s HSBC Flash Purchasing Managers Index, the earliest indicator of the country’s industrial activity, declined to a seven-month low of 48.1 in June from a final reading of 48.4 in May, as export orders remained firmly in contraction.
The data remained below the 50.0-mark for the eighth consecutive month, adding to concerns over a deepening slowdown in the world’s second largest economy.
China is the world’s second largest oil consumer after the U.S. and has been the engine of strengthening demand.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the euro zone’s ongoing sovereign debt crisis.
Crude prices came under additional pressure after a report showed that manufacturing activity in Germany slowed to the lowest level in three years in June, renewing concerns over the impact of the euro zone’s sovereign debt crisis on the region’s largest economy.
Oil traders often use manufacturing numbers as indicators for future fuel demand growth.
Meanwhile, the Fed announced Wednesday that it is extending the current bond buying program, known as “Operation Twist”, until the end of the year and said that it was ready to take additional steps. The bond purchasing program had been due to expire at the end of this month.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasury’s in tandem with the aim of pushing down long-term interest rates.
The announcement disappointed market expectations for more aggressive measures to shore up growth in the world’s largest economy, following a recent string of weak U.S. data.
Sentiment was also dampened after Fed officials lowered their estimates for economic growth, citing a weak jobs market and a depressed housing sector.
Meanwhile, a larger-than-expected build in U.S. oil supplies last week is forcing traders to refocus on the supply and demand picture.
The U.S. Energy Department said in its weekly report that crude oil inventories rose by 2.9 million barrels last week to a total of 387.3 million barrels as of last week, the highest level since July 1990, underscoring fears over a slowdown in oil demand from the U.S.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
Investors remained cautious ahead to the outcome of an audit of Spanish banks later in the day, amid concerns that the results could show that a EUR100 billion bailout for the country’s banks agreed earlier this month would not be large enough.
The debt-laden country was also set to hold an auction of government debt later in the day. The yield on Spanish 10-year bonds eased back to below the critical 7% threshold, after climbing to euro-era highs earlier in the week, amid fears that Madrid will be forced to seek a full-fledged international bailout.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery fell 1.65% to trade at 91.17 a barrel, with the spread between the Brent and crude contracts standing at USD11.03.
Prices fell to as low as USD91.06 a barrel earlier in the day, the lowest since December 20, 2010.
London-traded Brent prices are down nearly 29% since hitting an intraday high of USD128.38 on March 1.
Forexpros
