Oil trades near US$34 as Chinese manufacturing slowdown deepens

[HONG KONG] Oil traded near US$34 a barrel as Chinese manufacturing data deteriorated further and before a US report forecast to show rising stockpiles kept supplies at the most since 1930.

Futures swung between gains and losses in New York after rising to a seven-week high Monday. China's manufacturing purchasing managers index fell to 49 in February, missing the median estimate of 49.4 in a Bloomberg survey of economists.

It hasn't been weaker since Jan 2009. US supplies probably rose by 2.75 million barrels last week, according to a separate Bloomberg survey before Energy Information Administration data Wednesday.

"We've seen a rally, but we're moving into a period of soft seasonal demand against a background of high inventories," Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone.

"It's possible that we've got about as far as we can based on sentiment. For West Texas, there's a pronounced resistance level just under US$35 a barrel."

Oil has slipped about 8 per cent this year and averaged under US$32 a barrel during the past two months, the longest stretch below that level in more than 12 years.

Output from the Organization of Petroleum Exporting Countries slid by 79,000 barrels to 33.06 million barrels in February. Saudi Arabian production remained unchanged while Iraq and Nigeria pumped less.

West Texas Intermediate for April delivery was 42 US cents higher at US$34.17 a barrel on the New York Mercantile Exchange at 2:23 pm Hong Kong time after dropping as much as 0.7 per cent earlier.

The contract climbed 97 US cents to US$33.75 on Monday, the highest close since Jan 6. Total volume traded was about 9 per cent below the 100-day average. Prices rose 0.4 per cent in February, the first monthly gain since October.

China Slowdown

Brent for May settlement was 41 US cents higher at at US$36.98 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$1 to WTI for May. The April contract expired Monday up 87 US cents at US$35.97.

In a sign China's slowdown is spreading, the non- manufacturing PMI - which has been outperforming the factory measure - fell to the lowest level since Dec 2008. A separate factory reading from Caixin Media and Markit Economics fell to 48 in February, from 48.4 in January.

BLOOMBERG