LONDON: Brent crude fell below $114 a barrel on Thursday as European data showed a sharp slowdown in manufacturing, raising fears of slower economic growth and a decline in fuel demand.
German manufacturing activity in August grew at its slowest pace in almost two years due to a sharp drop in new orders, while French manufacturing activity contracted for the first time since July 2009.
"The main thing putting pressure on oil this morning is the really bad PMI (Purchasing Managers’ Index) readings in Europe," Olivier Jakob from Petromatrix said. "We have a contraction overall in Europe in the PMIs; this is confirmation that the economy is slowing down."
Front-month Brent touched $115.27 a barrel, the highest intraday price since Aug. 3, before falling to a low of $113.61. By 1100 GMT, October Brent was at $114.00, down 85 cents. US crude benchmark West Texas Intermediate (WTI) fell 38 cents to $88.43.
The European figures balanced data earlier in the day showing China’s manufacturing had improved in August, which raised hopes growth in the world’s largest energy consumer could offset slowing industrialized economies.
China’s PMI rose to 50.9 in August from a 28-month low of 50.7 in July, official data showed, while upbeat sentiment across financial markets lifted Asian stocks on hopes the US Federal Reserve would intervene to support the economy.
"Generally China has surprised on the upside and we expect it to continue to do so, although it will continue to moderate growth," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.
"We acknowledge the difficulties for China’s policymakers to deal with inflation, but we still think that the economy will be stronger than the market is fearing."
China Premier Wen Jiabao signalled on Thursday that controlling inflation would remain a top priority in coming months even as the world economy wobbles.
Eyes on US jobs
The US Labor Department releases at 1230 GMT first-time claims for jobless benefits for the week ended Aug. 27. Economists forecast a total of 410,000 new filings compared with 417,000 in the prior week.
Investors will be also looking at Friday’s US non-farm payrolls report for August as a guide for direction in the oil market. Payrolls are expected to have increased by 75,000 jobs, according to a Reuters survey, slowing from July’s 117,000 rise.
Crude prices rose on Wednesday after a report showed the US private sector added 91,000 jobs in August, while an index of factory activity in the US Midwest in August and US July factory orders were better than expected.
Still, the data continued to portray an economy struggling to mount a sustained recovery, raising expectations the Fed would adopt new measures to shore up the economy.
"It is still mainly the hopes of further liquidity injections from the Federal Reserve that are giving lift to oil prices. From a fundamental perspective, prices have meanwhile exceeded their justified level," Commerzbank analyst Carsten Fritsch said in a note. "As long as speculation about ‘QE3’ continues in the market, this current exaggeration should remain intact, although the air will get thinner for further price gains."
Hurricane watch
Concern about hurricane-related disruptions to supply in the US Gulf of Mexico also supported oil prices.
Katia strengthened into a hurricane over the Atlantic on Wednesday, while another mass of thunderstorms that could become a named storm this week triggered evacuations of some oil workers from the Gulf of Mexico.
BP began to evacuate more than 500 non-essential workers from four platforms in the region, home to large volumes of crude and natural gas production.
Brent crude gained in the previous session on the back of a sharp drop of 2.8 million barrels in US gasoline stockpiles last week and as North Sea production issues keep European crude supplies tight. –Additional reporting by Alejandro Barbajosa in Singapore
