Weaker Chinese Demand Pushes Current Oil Prices Lower

The current oil prices dropped further due to the possibility of lower fuel demand from China. The fall occured a day after the price of Brent ended the trading day about four dollars lower because of talks that Saudi Arabia was increasing crude stocks.

The crude price per barrel of Brent for November delivery fell 96 cents to reach London’s midday trading at $107.23.

The main contract of New York for delivery in October shed 92 cents to reach $91.06 per barrel.

The recent support for the crude price per barrel that came from last week’s Federal Reserve announcement of a third round of quantitative easing had already grown cold, according to analysts.

The continuous losses are indicating that QE3′s bullish effect had been already factored into the market for some weeks before the Fed announcement, and the current focus is already on weaker growth indicators of the global economy, according to a note sent by JBC Energy research group to clients.

The drop in current oil prices happened after new data showed that China, the second largest consumer of energy in the world, continues to to weaken for the 11th consecutive month.

The worries on crude demand strengthened after British banking giant HSBC came out with data showing that the China’s manufacturing sector is still “trapped in a rut,” according to strategist Justin Harper of the IG Markets Singapore trading group.

According to HSBC, the initial PMI reading it released for China for this month reached 47.8, a slight improvement from the past month’s final reading of 47.6. ¬†However, the most recent reading indicated an on-going contraction for almost a year now, since November of 2011, highlighting wider weakness of the economy and falling demand in primary international markets.

The index is being observed closely as it measures the manufacturing activity throughout the country. A PMI reading over 50 implies expansion, while anything below that indicates contraction.

The official PMI figure of China for the month of August that was released in the early parts of this month reached 49.2, its lowest in nine months.

By: Chris Termeer