Brent drops below $110

01 April 2013, News Wires – Brent crude eased under $110 per barrel on Monday after Chinese manufacturing data missed market expectations, signalling possibly slower demand growth in the world’s second-largest oil consumer.

China’s official purchasing managers index for March came in at 50.9, the highest in 11 months, although a Reuters poll showed economists expected an increase to 52.0 from February’s five-month low of 50.1.

A separate PMI survey by HSBC put the index at 51.6, mostly in line with an initial reading of 51.7, spurred by a rise in new orders.

“The data came in below market expectations, which could indicate that oil demand growth may not expand quite as quickly as we would like it to,” Reuters quoted Oil Outlooks and Opinion president Carl Larry as saying in Houston.

“But China’s still growing and that continues to be an underlying support factor long term for the market. Whether they are at 6% or 7%, they are growing.”

Brent crude for May delivery was down 27 cents at $109.75 per barrel by Monday morning, after slipping 1% in the quarter just ended. In early trade, the Brent contract hit a session high of $110.20, the loftiest since 15 March.

US crude was down 33 cents at $96.90 per barrel, after hitting a six-week high of $97.80 earlier in the session. West Texas Intermediate crude gained nearly 6% in the January-March period, Reuters said.

The price comparisons were against Thursday’s settlement prices, with trading in both markets shut on Friday ahead of the Easter holiday.

As ExxonMobil continued the clean-up of an oil spill in Arkansas, investor concern over the length of the supply disruption resulting from the shutdown of a pipeline is likely to support to the market.

ExxonMobil’s Pegasus pipeline, which is capable of carrying more than 90,000 barrels per day of crude from Illinois to Texas, is used to supply US Gulf Coast refineries.

“The fear premium is back on again. We are definitely concerned about supply flows with the maintenance season coming to a close,” Larry said.

“Furthermore, stocks at Cushing have been coming off for the past month, so the market is definitely watching to see what happens with Pegasus, because this could delay Keystone further.”

The Arkansas spill drew fast reaction from opponents of the proposed 800,000 bpd Keystone XL pipeline, which would also carry heavy crude from Canada’s tar sands to the Gulf Coast refining hub.

Environmentalists have expressed concern about the impact of developing the oil sands and have said the crude would be more corrosive to pipelines than conventional oil.

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