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Oil declines as China's industrial decline worsens

[HONG KONG] Oil slumped as China's factory gauge signaled conditions deteriorated for a sixth month and data showed that Kuwait and Nigeria helped boost crude production from OPEC, exacerbating a global glut.

Futures lost as much as 2.1 per cent in New York to snap a four-day advance, the longest run of gains this year. The official January purchasing managers index for manufacturing in China, the world's second-biggest oil user, dropped to a three- year low of 49.4, the National Bureau of Statistics said Monday. Output from the Organisation of Petroleum Exporting Countries (Opec) climbed to 33.11 million barrels a day last month as Indonesia's membership to the group was reactivated, according to data compiled by Bloomberg.

Oil slid 9.2 per cent in January as volatility in global markets added to concern over brimming US stockpiles and the outlook for increased exports from Iran after international sanctions were removed. Chevron Corp on Friday posted its first quarterly loss since 2002, which may presage a wave of writedowns as the other super-majors begin announcing results this week. Exxon Mobil Corp and BP Plc are scheduled to report Tuesday.

"Unless we begin to see some tangible news emerge on production cuts, we're getting toward the limits of this rally," Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. "Oil will struggle to get past US$36."

West Texas Intermediate for March delivery dropped as much as 72 US cents to US$32.90 a barrel on the New York Mercantile Exchange and was at US$33.12 at 11:09 am Hong Kong time. The contract climbed 40 US cents to US$33.62 a barrel on Friday to cap a 4.4 per cent weekly increase. Total volume traded was almost triple the 100-day average.

Brent for April settlement declined as much as 73 US cents, or 2 per cent, to $35.26 a barrel on the London-based ICE Futures Europe exchange. The March contract expired Friday after advancing 85 US cents to US$34.74. The European benchmark crude was at a premium of 60 US cents to WTI for April.

Opec's January output includes 815,000 barrels from Indonesia, which contributed for the first time since its membership was restored Jan 1 after a seven-year suspension, according to a Bloomberg survey. Nigeria's production increased 109,000 barrels a day to 2.028 million, the highest in a year, while Kuwait pumped an additional 100,000 barrels a day and Iran added 60,000 barrels a day.

China's manufacturing PMIcame in lower than a median estimate of 49.6 in a Bloomberg survey of economists, and represents the longest stretch on record of readings under 50, the level below which indicates contraction.

Hedge funds increased bullish bets by the most since 2010, according to data Friday from the US Commodity Futures Trading Commission. Speculators' net-long position in WTI rose 35 per cent in the week ended Jan 26 to 110,432 contracts of futures and options.

BLOOMBERG