Brent Crude Slides to 16-Month Low; WTI Slips on Risk to Demand

Sep 02, 2014 3:37 pm ET

(For Bloomberg fair value curves, see CFVL <GO>)

Sept. 2 (Bloomberg) -- Brent crude futures slumped to a 16- month low and West Texas Intermediate dropped to the lowest level since January on concern slower manufacturing from Europe to China will curb global oil demand.

WTI dropped for the first time in five days as the end of the peak driving season heralded the start of refinery maintenance. Gasoline futures reached the lowest level for a front-month contract since November. Crude prices also retreated after a dollar gauge rallied to the highest level since January.

“Concern about global economic conditions, primarily in Europe and China, is pushing oil lower,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The weak gasoline prices seem to be weighing on the whole complex. WTI is trading in the $92 to $96 range.”

Brent for October settlement slipped $2.45, or 2.4 percent, to $100.34 a barrel on the London-based ICE Futures Europe exchange, the lowest close since May 1, 2013. The volume of all futures was 24 percent above the 100-day average.

WTI for October delivery declined $3.08, or 3.2 percent, to $92.88 a barrel on the New York Mercantile Exchange, the lowest settlement since Jan. 14. Volumes were 33 percent above the 100- day average. Floor trading was closed yesterday for the Labor Day holiday and electronic trades were booked for settlement purposes today.

The European benchmark crude traded at a premium of $7.46 to WTI on the ICE, compared with a close of $7.23 on Aug. 29.

Post-Holiday Selloff

“It’s the typical post-holiday selloff,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We are going into refinery turnaround pretty soon. All that bullish exuberance has been exorcised out of the market right now.”

The Purchasing Managers’ Index in Europe fell to 50.7 in August from 51.8 in July, London-based Markit Economics said yesterday. The European manufacturing index was less than the Aug. 21 preliminary reading of 50.8. Italian manufacturing unexpectedly shrank last month, while German factory growth was less than initially estimated.

In China, the second-largest oil consuming country after the U.S., the Purchasing Managers’ Index was at 51.1 for August, missing the median 51.2 estimate in a Bloomberg survey. The final reading of a separate manufacturing gauge from HSBC Holdings Plc and Markit Economics was 50.2.

Supply Side

October gasoline futures declined 7.99 cents, or 3.1 percent, to $2.543 a gallon, the lowest settlement since Nov. 7. The September contract expired on Aug. 29.

Refineries schedule maintenance in September and October when units move from maximizing gasoline output to producing winter fuels.

“Going into the fourth quarter, energy is generally weaker,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “We know there is plenty of supply, so on the supply side the market will remain bearish.”

Regular gasoline at the pump, averaged nationwide, slid 0.3 cent to $3.434 a gallon yesterday, the lowest seasonal price since 2010, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

The Bloomberg Dollar Index climbed as much as 0.5 percent to 1,034.91, the highest since January. A strong dollar reduces oil’s investment appeal.

Stronger Dollar

“Crude is held down with the dollar being stronger today,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We have more than ample supplies out there.”

Crude inventories were 360.5 million barrels in the week ended Aug. 22, according to the Energy Information Administration. That’s near the highest level for this time of year since 1990.

Crude also decreased as tensions between Ukraine and Russia have so far spared oil supplies. Russian Foreign Minister Sergei Lavrov said Ukraine’s allies are stoking the five-month conflict and should back peace talks, even as President Vladimir Putin sought to calm concern over remarks his army could “take Kiev” in a matter of weeks.

U.S. President Barack Obama is heading to eastern Europe to reassure NATO members of their security.