LONDON: Oil fell more than $2 to around $72 on Tuesday, erasing earlier gains, after Chinese and European data raised concerns over the pace of economic growth.
China’s factories scaled back production last month and slowed the pace of hiring, the purchasing managers’ index (PMI) for May showed on Tuesday.
Manufacturing activity in the euro zone also expanded in May at a considerably more sluggish pace than April’s 46-month high, a survey showed on Tuesday.
US crude for July delivery slipped to a low of $71.93 per barrel by 0850 GMT, down $2.04, after moving above $75 in early Asian trade.
Trade was thin and there was no settlement price on Monday because of the Memorial Day holiday in the United States. The New York Mercantile Exchange will combine Monday’s and Tuesday’s trading sessions into one.
ICE Brent crude for July also fell more than $2 to a low of $72.20, down $2.45. It touched $68.15 a week ago, the lowest intraday price for a front-month contract since Feb. 5.
China’s PMI, an indicator of factory activity, compiled by the China Federation of Logistics and Purchasing, fell to 53.9 in May from 55.7 in April, close to analysts forecasts of 54.0.
However, it stood above the threshold of 50 that demarcates expansion from contraction for the 15th consecutive month.
"The Chinese figures were not as good as expected and signals slowing growth later this year," said Eugen Weinberg, commodities analyst at Commerzbank in Frankfurt.
"Yesterday’s holiday is also having a bit of an impact on the speed of the move as traders are closing off positions that they could not trade out of over the long weekend," he added.
US crude posted its biggest monthly loss since 2008 in May, losing almost 14 percent, after the European economic crisis raised the prospect of reduced fuel demand.
Stock markets slid on Tuesday with creeping suspicion that a peak in the pace of recovery has passed and slowing growth in China and Europe in the second half of the year will be obstacles to risky trades.
The relative strength index (RSI) for US crude, a chart indicator based on trading volumes that signals whether a price drop or increase has gone too far, has now returned to average levels, suggesting US crude is no longer oversold.
Analysts say future oil supply could also be affected by decisions taken to restrict offshore drilling in the wake of the slick from BP’s blown-out Gulf of Mexico well, the worst oil spill in US history.
The spill may not be shut off until August, officials said, as the company begins preparations on a new but uncertain attempt to contain the leaking crude.
BP shares slid as much as 15 percent at one point, wiping 14 billion pounds ($20.4 billion) off the value of what was once Britain’s biggest company and taking total losses in market capitalization since April 20 to 44 billion pounds ($64.2 billion).
The environmental catastrophe led the US government to stop issuing new exploratory drilling permits in deep water for six months and declare a ban that effectively idles operations of 33 deepwater exploratory rigs for the same period. –Additional reporting by Alejandro Barbajosa
