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Oil dives on poor China factory data
[NEW YORK] World oil prices tumbled on Tuesday as poor manufacturing data in China, the world's largest energy consumer, hammered the outlook for demand and shook market confidence.
US benchmark West Texas Intermediate for October delivery lost US$3.79, or 7.7 per cent, closing at US$45.41 a barrel on the New York Mercantile Exchange.
The sell-off snapped a strong three-day WTI rally that had pushed the futures contract up more than 27 per cent, rebounding from six and a half year lows.
In London, Brent North Sea crude for October closed at US$49.56 a barrel, down US$4.59, or 8.5 per cent, from Monday's settlement.
China's economic woes once again were hitting markets worldwide. Official data released earlier in the day suggested the country's key manufacturing sector stalled in August. The purchasing managers index (PMI) slumped to a three-year low of 49.7 in August from 50.0 in July. A reading below 50 indicates contraction.
US financial giant Citigroup said that China was driving prices of commodities, including oil, lower "as never before." "We expect China to continue to exert downward pressure on commodity prices in the coming months," it said.
And manufacturing growth appeared to be stalling in the powerhouse United States. The Institute for Supply Management's PMI slid closer to contraction in August, falling to 51.1, the year's low, from 52.7 in July.
Analysts said the global crude oversupply remains a drag on prices, despite the sharp rebound in the past three days.
"Even though US production has started to fall, June production was still up 7.1 per cent over a year ago," said Nicholas Teo, market analyst at CMC Markets.
"In the near term, there is likely to be little or no relief on either the supply or demand fronts," said business consultancy IHS.
"In particular, the oversupply problem could take a long time to correct."