Oil prices fall on weak Chinese manufacturing, US refinery strikes

[SINGAPORE] Crude oil prices fell on Monday after US unions called a refinery strike and traders cashed in on strong price gains last week when the market soared on a sharp drop in US drilling.

Brent crude oil futures were trading at US$51.93 a barrel at 0733 GMT, down US$1.06, while US WTI futures had dropped US$1.01 to US$47.24 a barrel.

Slowing manufacturing gowth in China also weighed on oil markets.

"Manufacturing activities are likely weakening amid slackening demand growth, even taking potential distortion from Lunar New Year (Feb. 19) into account," Morgan Stanley said.

Activity in China's factory sector shrank for the second straight month in January, a private business survey showed on Monday, as the new year got off to a rocky start for the world's second-largest economy.

Monday's fall in oil prices followed a jump back from six-year lows on Friday on the back of a record decline in US drilling.

"Oil production in the shale basins will inevitably decrease as weaker, higher-cost producers shutter their operations. This supports our view that oil prices will recover this year and average US$60 per barrel for Brent," Nomura said.

Analysts said on Monday's declines were a result of profit-taking after last week's gains, as well as rising Opec-output offsetting lower US drilling.

Potentially denting short-term demand for crude is a US strike at nine refineries and chemical plants since Sunday.

Despite Monday's falls, oil prices have broken out of a tight pattern within clear trendlines in January.

Along with returned volatility, Brent's open interest - the number of outstanding futures contracts - rose to a record of 1.7 million, in a signal that traders took on new positions when prices hit lows last month.

With Brent back above US$50 per barrel for the first time since early January its price also jumped above its 15 daily moving average value, a key technical indicator, for the first time this year.

Overall, Brent's price curve remains in contango, meaning contracts for prompt delivery are cheaper than those further in the future. March 2015 Brent contracts are around US$10 per barrel cheaper than those for delivery in March 2016.

"A recent pickup in interest for US storage capacity and the chartering of tankers for floating storage plays illustrates the market reaction to the widening crude curve contango," Timera Energy said.

REUTERS