Brent slips towards $108 on China data

SINGAPORE: Brent futures slipped towards $108 a barrel on Monday as data showing an unexpected fall in China's exports added to fears of a slowdown in the world's No. 2 economy, though geopolitical tensions in Ukraine and Libya limited the decline.

The sharp drop in exports stoked oil demand-growth worries as it followed a series of factory surveys since the start of 2014 that points to weakness in economic activity. Most risk assets, including Asian shares and base metals, also fell due to the weak numbers.

Brent crude declined 55 cents to $108.45 a barrel by 0522 GMT, snapping two straight days of gains. U.S. fell 23 cents to $102.35, after touching a high of $102.82. It settled up $1.02 on Friday.

"Oil pulled back because of the latest data from China despite continuing tensions over Ukraine," said Victor Shum, vice-president of energy consultancy IHS Energy Insight. "The ongoing situation in Ukraine will put a high floor on oil prices and lead to more volatility."

Shum sees strong support for the U.S. benchmark at $100 a 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.

UKRAINE, CHINA

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," said Shum of IHS. "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 percent from the same period a year earlier, versus a 7.9 percent full-year rise in 2013, bolstering concerns that the data wasn't weak due to possible distortions caused by the long Lunar New Year holiday, which began on Jan. 31 and covered 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 percent 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 startup of two new refineries (Sichuan and Quanzhou) in January, with a combined capacity of 440,000 barrels per day (bpd)," Sijin Cheng, an analyst at Barclays, said in a note. "But refiners also built stocks, commercial crude inventories were up 3.6 percent month-on-month by the end of January." 

 

Source – Reuters