Oil below $56 as Saudi output near record, China activity slows

Tue Mar 24, 2015 5:31am EDT
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By David Sheppard

LONDON (Reuters) - Brent crude oil held below $56 a barrel on Tuesday on signs of slowing growth in China and as Saudi Arabia said its production was close to an all-time high.

Factory activity in China, the world's second-largest economy and top oil importer, slipped in March with the flash HSBC/Markit Purchasing Managers' Index (PMI) reading at 49.2, below the 50-point level that separates growth from contraction.

Economists polled by Reuters had forecast a reading of 50.6.

Brent futures LCOc1 for May delivery were trading down 20 cents at $55.72 at 0856 GMT, while U.S. crude CLc1 dropped 31 cents to $47.14 a barrel. Its discount to Brent CL-LCO1=R widened to $8.58 a barrel.

The Chinese data followed comments from OPEC kingpin Saudi Arabia that it is pumping around 10 million barrels of crude per day, close to an all-time high and some 350,000 bpd above the figure it gave OPEC for its February output.

OPEC's decision to fight for market share rather than cutting output has contributed to a halving in oil prices since June as the global surplus of oil supplies has grown.

The market is expected to be at its weakest in the second quarter as winter fuel demand wanes while peak summer driving activity is yet to kick in. Energy consultancy FGE forecasts a global surplus of 2 million barrels per day between April and June.

"We expect crude prices to be pressured once again," FGE said in a note.   Continued...

An offshore oil platform is seen in Huntington Beach, California September 28, 2014.  REUTERS/Lucy Nicholson