Oil under $119 as data worries

Tue May 1, 2012 9:47am EDT
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LONDON (Reuters) - Oil eased on Tuesday to trade under $119 a barrel due to worries that a sluggish economic recovery in Western economies together with below-expectations Chinese manufacturing data, could depress demand for fuel.

Brent crude futures slipped 57 cents to $118.90 a barrel by 1326 GMT (8:26 a.m. EDT). U.S. crude futures eased 18 cents to $104.69.

China's factory sector grew at a slightly higher rate in April from the previous month, a sign the economy of the world's number 2 oil consumer may have bottomed out in the first quarter.

The pick-up in the Chinese purchasing managers index indicated a further expansion in the factory sector, but came in slightly below market expectations.

"The Chinese PMI data, although improved slightly month-on-month, came in below expectations," said James Zhang from Standard Bank. "Recent data suggests a more broad-based slowdown in the economy in the U.S., China, not to mention the euro zone, so there is some pressure on oil."

Brent prices dipped by around 2.8 percent over the past month. Further upside to prices will be subdued in the very short term, according to analysts, while the May Day holiday will also drain some volume from the market during the session.

"Over the past week we've seen a lack of directional conviction and lower risk appetite in terms of economic uncertainty and the Fed's economic policy in terms of quantitative easing," BNP Paribas's head oil strategist Harry Tchilinguirian said.

The economic outlook remains particularly challenging for the euro zone after its fourth-largest economy, Spain, sank back into a recession during the first quarter.

In the United States, where the economy slowed going into the second quarter, spending increased only modestly last month and a gauge of Midwest business activity fell sharply.   Continued...

A motorist prepares to put fuel into her car at a petrol station in Melbourne July 3, 2008. REUTERS/Mick Tsikas