Brent Oil Extends Two-Month Slump Amid OPEC Expansion; WTI Falls

Sep 01, 2014 2:45 pm ET

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Sept. 1 (Bloomberg) -- Brent crude extended a two-month slide as OPEC’s production was seen increasing and manufacturing gauges in Europe and China missed estimates. West Texas Intermediate fell in New York.

Futures slid as much as 0.6 percent in London, having retreated more than $9 in July and August. The Organization of Petroleum Exporting Countries boosted output by 891,000 barrels a day to 31 million in August, the highest level in a year, estimates compiled by Bloomberg show. Purchasing Manufacturing Indexes for Germany, Italy, the U.K. and China all came in below estimates for August. Floor trading in the U.S. is closed for the Labor Day holiday today.

“Those disappointing PMI numbers are helping push oil prices lower,” Michael Hewson, a London-based analyst at CMC Markets Plc, said by e-mail. “Lower demand against expectations of higher production is helping cap the upside.”

Brent for October settlement dropped as much as 63 cents to $102.56 a barrel on the London-based ICE Futures Europe exchange and closed at $102.79 at 1:30 p.m. New York time. The volume of all futures traded was about 61 percent below the 100-day average for the time of day. Prices decreased 2.7 percent in August and 5.6 percent in July, the longest slump since May 2013. Brent is down 7.2 percent this year.

WTI for October delivery fell 18 cents to $95.78 a barrel at 1 p.m. on the New York Mercantile Exchange, after dropping as much as 44 cents to $95.52. Transactions will be booked tomorrow for settlement purposes. The European benchmark crude traded at a premium of $6.99 to WTI on ICE, compared with $7.23 on Aug. 29.

OPEC Supply

Nigeria, Saudi Arabia and Angola led production gains among OPEC members last month as new deposits came online, security improved and field maintenance programs ended, according to the Bloomberg survey of oil companies, producers and analysts. Iran and Venezuela were the only members to record reduced output.

“Representatives of OPEC countries have been surprisingly quiet following the $10-per-barrel drop in oil prices over the last two months,” JBC Energy GmbH, Vienna-based analysts, said in a report today. The organization will contemplate output cuts in the coming months as Saudi Arabia’s demand for direct-burning of crude slides and Asian refineries seek less feedstock from the Middle East, JBC said.

Siege Lifted

Iraq, the second-largest producer among OPEC’s 12 members, expanded output by 90,000 barrels a day to 3.09 million in August, the survey shows. The advance of Islamic State, a militant group, has spared the country’s south, home to about three-quarters of its production.

Seven Iraqi government troops and two members of the Kurdish forces known as Peshmerga were killed in the battle to free Amirli, ending a siege imposed by Islamic State militants that lasted for more than two months, said the health office in the northern city of Kirkuk. The offensive was preceded by U.S. air strikes on Islamic State positions. U.S., U.K., and Australian forces also delivered aid to the residents of the Shiite-dominated town.

Markit Economics said its euro-area gauge fell more than initially estimated last month, with the index for Italy unexpectedly dropping below 50, indicating the first contraction in 14 months. In the U.K., manufacturing grew the least in more than a year, with spillovers from the weak euro region among the factors cited.

Manufacturing Growth

China’s manufacturing expanded at a slower pace in August, adding to weaker-than-projected credit, production and investment data that suggest the economy is losing momentum. The government’s Purchasing Managers Index was at 51.1, missing the median estimate of 51.2 in a separate Bloomberg survey.

WTI climbed 2.5 percent last week, the first gain in more than a month, amid speculation that an improving U.S. economy will bolster fuel demand. The country will account for about 21 percent of global oil consumption this year, almost double that of China, the second-biggest user, forecasts from the International Energy Agency in Paris show.

Money managers increased net-long positions on WTI by 0.6 percent in the week ended Aug. 26, boosting bullish wagers from a 16-month low, according to data from the U.S. Commodity Futures Trading Commission. Speculative net-long positions on Brent crude rose for the first time in four weeks, climbing by 1,919 contracts to 64,998 lots, according to ICE data.

--With assistance from Lynn Doan in San Francisco.