GO
Loading...

Brent Crude Slips on Weaker China Growth

Getty Images

Oil pared losses on Monday but was still trading lower as the dollar slid off its session high and as weak data in top oil consumer China muddied the demand outlook.

Brent crude oil last dropped 0.7 percent to mire under $104 a barrel, after climbing to $104.76 earlier. U.S. light, sweet crude dropped 0.2 percent to under $96 per barrel.

The U.S. dollar strengthened early in the session on news that ratings agency Standard & Poor's upgraded the credit outlook for the U.S. government. It then pared gains after a top Federal Reserve official said that low U.S. inflation means the government would continue its massive bond buying program.

Oil prices tend to move in the opposite direction to the dollar. Commodities traded in the U.S. greenback become more expensive in other currencies as it rises and cheaper as it falls, generally bringing more buyers into the market, analysts said.

Oil prices tend to move in the opposite direction to the dollar. Commodities traded in the U.S. greenback become more expensive in other currencies as it rises and cheaper as it falls, generally bringing more buyers into the market, analysts said.

China's economy is losing momentum, with May exports and domestic activity struggling to pick up.

Refinery production dropped to a nine-month low and implied oil demand in the world's number two oil consumer in May rose at its lowest rate since September 2012, compared with the year-earlier month, according to Reuters calculations.

U.S. oil prices rose to a two-week high on Friday after a jobs data report showed a slight improvement in hiring. Trading volumes on Friday in the U.S. front-month crude oil contract were at their highest level since November 2012, according to Reuters data.

That one piece of positive data was not enough to continue a rally into Monday as overall global economic data remain weak to neutral, analysts said.

"We're pivoting around $94," said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. "We can get a couple of dollar swings without a clear direction of where the market is going. If we get up to $98 we'll find out if we really do have a rally on our hands."

U.S. stockpiles of crude and production are at or near record highs. OPEC and the International Energy Agency (IEA) will release their monthly global oil demand reports on Tuesday, with the U.S. Energy Information Administration (EIA) to follow on Wednesday.

The EIA estimated that global reserves of shale oil that can be drilled with today's technology have shot up 10 times higher compared to an estimate from two years ago.

Still, speculative money continues to enter the market. Speculators raised their net long positions in Brent crude oil futures in the week to June 4 to their highest level in more than three months.

Prices drew some support from concerns about Sudan cutting oil exports from South Sudan.