Activity in China’s factory sector contracted in January for the first time in six months as new orders declined, confirming that a mild slowdown at the end of 2013 has continued into the new year. In the US, industry data showed a sharp build up in crude stocks despite a bitterly cold winter.
Brent crude fell 32 cents to $107.95 a barrel early on Thursday, after ending up $1.54, the highest settlement since 31 December. US oil slipped 22 cents to $96.51, after settling $1.76 higher at $96.73.
“The data is a bit concerning,” said Ken Hasegawa, a commodity sales manager at Newedge Japan. “There was a big increase in US crude oil stocks and now China PMI numbers are worse than expected. That’s making the market come off.”
Most markets, including Asian shares and copper, fell after the China data. The flash Markit/HSBC Purchasing Managers’ Index (PMI) fell to 49.6 in January from December’s final reading of 50.5, dropping below the 50 line which separates expansion of activity from contraction.
Brent may slip towards $107.50 a barrel during the day, while the US benchmark may fall towards $96, Hasegawa said. Prices may also fall as some investors book profits after the surprise rise in prices overnight.
Oil futures surged after TransCanada began delivering crude through a major new pipeline from Oklahoma to the Gulf Coast, expected to help eliminate a bottleneck that has warped the US oil market for three years.
The pipeline may also narrow the price gap between the US benchmark and Brent. US oil’s discount to Brent settled at $11.54, the smallest discount since 19 December.
Yet the gains overnight following the pipeline announcement may have been overdone, Hasegawa said.
“I was a bit surprised to see the rise overnight,” Hasegawa said. “We may see some profit-taking as a result of the gains.”
Investors are now awaiting official data on oil stockpiles from the US Energy Information Administration (EIA) to gauge the demand outlook for the United States.
US crude inventories rose by 4.9 million barrels in the week to 17 January, to 355.7 million, compared with analysts’ expectations for an increase of 600,000 barrels, as refineries cut output, the American Petroleum Institute (API) said.
Distillate stockpiles, which include diesel and heating oil, fell by 2.3 million barrels, compared with expectations for a 900,000 million-barrel drop, the data showed.
Markets are also watching the progress in talks to end the crisis in Syria. Syria’s government and opposition, meeting for the first time, vented their mutual hostility on Wednesday but a UN mediator said the enemies may be ready to discuss prisoner swaps, local ceasefires and humanitarian aid.