Oil Prices Struggle On Energy Demand, Fed Worries

U.S. crude-oil futures fell Thursday, as the market grappled with weak manufacturing-activity figures from China, an increase in U.S. oil supply and signaling by the Federal Reserve that a reduction in monetary stimulus is in sight.

Crude for July delivery  lost $1.63, or 1.7%, in electronic trade to $96.61 a barrel.

Oil prices had been down 0.7% just before the release of an HSBC report showing further slowing in China’s manufacturing sector in June.

The “flash” version of HSBC manufacturing Purchasing Managers’ Index fell to a nine-month low of 48.3, down from May’s final reading of 49.2. A reading below 50 indicates contraction.

The “disappointing flash reading” for June and the Chinese government’s “priority attention on structural reform rather than near-term weakness, suggest that the economic activity may continue on the weak side in the near term,” said emerging-markets analysts at J.P. Morgan to clients on Thursday.

They also said those factors pose some downside risk to their forecast of a modest recovery in the second quarter.

Softness in Chinese manufacturing activity dents the prospects for energy demand, as do data that U.S. oil stockpiles continue to grow. On Wednesday, the U.S. Energy Information Administration said crude-oil supplies rose by 300,000 barrels for the week ended June 14, to 394.1 million barrels. A Platts survey of analysts forecast a decline of 1 million barrels.

Crude prices on Wednesday finished floor trading on the New York Mercantile Exchange down 20 cents at $98.24 a barrel after the EIA data and after the Federal Reserve issued a more upbeat forecast for the U.S. economy.

Stronger economic growth is positive for energy demand, but energy investors have also been concerned that the Fed will soon slow the pace of bond purchases that are aimed at bolstering economic activity.

The Fed on Wednesday said if the economy improves in line with its forecasts, then it foresees reducing the pace of bond buying — currently set at $85 billion a month — by the end of the year.

Prices for other energy products turned lower Thursday, with July gasoline  down 4 cents, or 1.4%, to $2.85 a gallon. July heating oil   shed 4 cents, or 1.3%, to $2.93 a gallon.

Natural gas for July delivery  fell 3 cents, or 0.7%, to $3.94 per million British thermal units.

Source : Marketwatch