Prices slumped early on official data from China, the world’s second-biggest oil consumer, showing the February purchasing managers’ index at 50.1, fractionally above the no-growth mark and down from a reading of 50.4 in January.
Worries over a record-high euro-zone unemployment rate of 11.9% in January kept the market on edge as traders worried about Italy’s ability to continue economic reforms after its recent elections.
In the U.S., the Commerce Department said personal income dropped to a 20-year low in January as higher taxes kicked in. Personal incomes fell 3.6%, compared with economists’ forecasts for a 2.5% decline. Consumers responded by saving less, rather than spending less, as consumer spending ticked up 0.2%.
Meanwhile, President Barack Obama offered no hint of any deal between the White House and Congress to avoid automatic spending cuts of $85 billion as a deadline loomed.
The president on Friday said the lack of a deal would result in government furloughs and layoffs, but he cautioned that the cuts would not trigger a new financial crisis. “It is absolutely true that this is not going to precipitate the kind of crisis we talked about with America defaulting and some of the problems around the debt ceiling,” Mr. Obama said. “I don’t anticipate a huge financial crisis, but people are going to be hurt.”
Analysts said the pall cast over the U.S. economy in the near term by the cuts doesn’t bode well for an already shaky oil-demand outlook for the world’s biggest oil consumer.
Light, sweet crude-oil futures for April delivery on the New York Mercantile Exchange dropped $1.37 a barrel to settle at $90.68, the weakest since Dec. 24. In the past month, crude prices have fallen more than $7 a barrel, or 7.3%.
ICE North Sea Brent crude oil for April dropped 98 cents to settle at $110.40 a barrel, also the lowest price since Dec. 24. The price has fallen $4 a barrel since Monday.
Jim Ritterbusch, president of Ritterbusch & Associates, said dollar strength against the euro will be crucial to the near-term oil price. Strength in the dollar discourages some investors with foreign currencies from investing in dollar-based commodities, like oil futures. The euro dropped to the lowest level this year against the dollar on Friday, at $1.30.
“The next $5 price move [is] heavily contingent upon the direction of the U.S. dollar and, more specifically, swings in the euro currency,” Mr. Ritterbusch said in a note to clients.
Crude prices also are undermined by the highest levels of U.S. crude oil stocks for this time of year in 30 years.
“We’ve got really ample supplies, but we’re not really seeing any significant pickup or sign that demand is humming along,” said Gene McGillian, analyst and broker at Tradition Energy.
April-delivery contracts for reformulated gasoline blendstock futures and heating oil began trading as the front-month on Friday, after March contracts expired Thursday.
The April RBOB contract meets the requirement for summer-grade gasoline, which fetches a higher price than the winter-grade fuel traded in the March contract.
April RBOB settled up 1.69 cents at $3.1286 a gallon, the highest front-month price since Feb. 15.
April heating oil settled down 3.02 cents at $2.9301 a gallon, the lowest price since Dec. 11, as the winter peak demand season essentially ends with the March contract’s expiry.
*David Bird, Dow Jones News Wire