Crude Buckles on Gloomy China Data, Strong Dollar

Oil Refining’s Fortunes Rise
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Oil prices pared losses after falling to a three-week low on Thursday in a broader commodities selloff, supported as selling in U.S. equities tapered off on the back of encouraging domestic economic data.

A decline in China's factory activity entrenched concern about weak demand in the world's second-largest oil consumer, weighing on prices in early trading.

Oil retraced its morning losses which bottomed around 10 a.m. EDT after the release of strong U.S. housing data stoked worries about an early scale-back in U.S. Federal Reserve stimulus, sending equity markets down.

Front-month Brent futures fell 13 cents to claw back above $102 a barrel, after having fallen as far as $100.64, its lowest since May 2. Prices are down sharply from a 2013 high of $119.17 reached on Feb. 8. U.S. crude declined by about three cents to $94, after having dropped by more than $2.

U.S. crude earlier met resistance at its 200-day moving average mark of $92.29, trading slightly below it for a time before climbing back up.

"It's a pretty volatile session. We bounced back and are following the equity markets a bit," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

Interpreting Data

China's factory activity shrank for the first time in seven months in May, a survey showed, weighing on oil as well as copper, for which China is the world's top consumer.

Sales of new U.S. single-family homes rose 2.3 percent in April, and prices climbed to record high levels, offering strong proof the sector's rebound trend is intact.

While signs of economic recovery would ordinarily be supportive for oil, market-watchers are interpreting news in light of how it may affect the U.S. Federal Reserve's quantitative easing policies that have pumped hundreds of billions of dollars into money markets, boosting many commodities, including oil.

"You can't please these guys. Now every time we get data that's good, it suggests we'll get a tapering off the stimulus," said Phil Flynn, analyst at Price Futures Group in Chicago, Illinois.

"So when we see housing data that blows away expectations, it makes us pull back a bit."

Fed Chairman Ben Bernanke told a congressional committee on Wednesday the Fed could scale back the pace of bond purchases at one of its next few policy meetings.

Euro zone data on Thursday offered little support for oil prices. While a downturn eased slightly this month, a dearth of new orders means the region's economy is likely to contract again in the second quarter, surveys showed.

Oil also fell on Wednesday pressured by a rise in U.S. gasoline inventories.

A weekly U.S. Energy Information Administration report showed gasoline stocks are close to their highest level for the time of year since 1999, indicating ample supply for the summer driving season when demand rises.