Oil price slides after China data, US inventories ahead

Oil prices tumbled as trade in Europe got underway today, after HSBC reported a contraction in Chinese manufacturing activity in March, adding to bearish sentiment after comments from Saudi Arabia, and feeding speculation that the global supply glut will persist. Investors now turn to US oil inventories and consumer inflation figures, with production volumes and the dollar in focus.

West Texas Intermediate for May delivery on the New York Mercantile Exchange was down 1.37 percent at $46.80 per barrel as of 7:10 GMT today, with a daily trading range of $46.75 – $47.51. The contract added 1.9 percent on Monday, after losing about one percent last week.
Meanwhile, Brent for settlement in May was trading at $55.58 per barrel on the ICE in London, 0.61 percent down on the day and at an $8.78 premium to its US counterpart. The European benchmark gained about one percent on Monday, adding to the 1.2 percent increase from last week.
HSBC posted its preliminary readings on Chinese manufacturing activity late last night. The bank reported a PMI of 49.2, an 11-month low, falling short of the expected 50.6. A reading below the 50.0 mark means that the sector has contracted from the previous month. The manufacturing sector in China generates almost half of the country’s GDP and is a leading indicator for the whole economy, which is the second-top oil consumer after the US.
The worse-than-expected figures from China added to bearish sentiment after over the weekend Saudi Arabia confirmed that it will continue pumping oil at high volumes, potentially exacerbating the global supply-demand imbalance. The kingdom reported growing crude oil production, now standing at almost 10 million barrels per day and exceeding the planned output.
Saudi Arabia generates net oil exports of about 8.7 million barrels per day, according to the US Energy Information Administration. The kingdom also maintains the world’s largest crude oil production capacity and is the only big exporter capable of freely switching some production off without incurring significant costs. Analysts had expected it to cap output in order to support prices against the 60 percent slump in crude since August, but the country has dismissed those suggestions, opting to defend its market share instead.
Investors now eye upcoming US oil inventories data for further cues. The industry-funded American Petroleum Institute (API) will report its weekly figures later today, ahead of the official Energy Information Administration (EIA) report on Wednesday. Analysts expect crude stocks to have added a further 5 million barrels in the week to March 20, to reach a new 80-year peak. US production was also near record-highs last week, despite producers idling a growing number of rigs.
Meanwhile, the US dollar continues to pull strings in the oil market. The three percent slide in the valuation of the greenback since last week enabled holders of other currencies to acquire oil more cheaply, which offered some extra demand and revived crude prices in the midst of a growing supply glut. Now investors will be looking to US consumer inflation figures, as they gauge the Fed’s sentiment towards hiking borrowing costs.
“At this point, the US Federal Reserve…will have as much of a role in determining the path of crude oil as will Tehran and Riyadh,” oil newsletter The Schork Report said on Monday, as quoted by The Wall Street Journal.