10 March 2014, News Wires – Oil fell more than $1 to below $108 a barrel as an unexpected fall in exports stoked fears of a slowdown in the Chinese economy, although geopolitical tensions in Ukraine and Libya continued to prop up prices.
The drop in China’s exports increased concerns over growth in oil demand as it followed a series of disappointing factory surveys since the start of 2014. Most risk assets, including Asian shares and base metals, also fell due to the weak numbers.
After two straight days of gains, Brent crude was trading $1.15 down at $107.85 by 1345 GMT, having fallen $1.25 earlier in the session. US oil fell $1.49 to $101.09 a barrel after touching a high of $102.82.
Most risk assets, including Asian shares and base metals, also fell due to the weak numbers.
Christopher Bellew, trader at Jefferies Bache told Reuters he believed the falls would be “limited” because the Chinese economy was nonetheless in good shape.
“We’ve seen some disappointing data from China … But I think people get a bit over-pessimistic about these numbers when the overall picture is still quite good,” he said.
He suggested the benchmark was giving up price gains seen in recent weeks on tensions in Ukraine.
“There has been no sign of deterioration in Ukraine. At the end of last week there was a rally that priced in an unexpected event at the weekend and that hasn’t happened,” Bellow said.
HS Energy Insight vice president Victor Shum said that “oil pulled back because of the latest data from China” but that “the ongoing situation in Ukraine will put a high floor on oil prices and lead to more volatility”.
Shum sees strong support for the US benchmark at $100 per barrel and Brent holding around its current trading range in the short term, largely supported by geopolitical tensions.
Russian President Vladimir Putin defended breakaway moves by pro-Russian leaders in Crimea, where Russian forces tightened their grip on the Ukrainian Black Sea peninsula by seizing another border post and a military airfield.
Germany’s Angela Merkel delivered a rebuke to Putin, telling him that a planned Moscow-backed referendum on whether Crimea should join Russia was illegal and violated Ukraine’s constitution.
Gazprom issued a warning on Friday that it could stop shipping gas to Ukraine over unpaid bills, increasing pressure on the new government in Kiev and its supporters in Europe.
Gazprom had halted gas supplies to Ukraine over unpaid bills in 2009, which led to reductions in supplies of Russian gas to Europe during a cold winter.
“We will continue to see some back and forth between Russia and the West over Ukraine,” Shum told Reuters. “That will keep geopolitical tensions high and support oil.”
For now, oil is under pressure as combined Chinese exports in January and February fell 1.6% from the same period a year earlier, versus a 7.9% full-year rise in 2013, bolstering concerns that the data was not weak due to possible distortions caused by the long Lunar New Year holiday, which began on 31 January through to early February.
Prices were under pressure even though China’s total crude oil imports in the first two months of the year rose 11.5% from a year earlier to 51.21 million tonnes, as investors saw the rise partly as a result of build up in commercial crude inventories.
“Supporting imports was the start-up of two new refineries in January, with a combined capacity of 440,000 barrels per day,” Sijin Cheng, an analyst at Barclays, said in a note. “But refiners also built stocks, commercial crude inventories were up 3.6% month-on-month by the end of January.”