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.
The non-farm payroll figures on Friday will be the next indicator on the state of the economy of the world’s top oil consumer.
Oil investors were also looking ahead to the latest weekly inventory data from industry body the American Petroleum Institute (API) due at 4:30 p.m. EDT (2030 GMT).
Higher OPEC output and expectations for a sixth weekly rise in U.S. crude inventories could also weigh on prices. <EIA/S>
“OPEC pushing production to the limit in the weakest demand quarter is clearly a recipe for lower prices,” said David Hufton of oil brokers PVM in a report.
OPEC’s April output was at its highest since 2008 as extra crude from Iraq and Saudi Arabia helped make up for tighter sanctions on Iran, whose own oil output sank to the lowest in two decades, a Reuters survey found.
Iraq’s crude exports rose to 2.508 million barrels per day (bpd) in April from 2.317 million bpd in March as new offshore export terminals helped increase sales, the head of its State Oil Marketing Organisation said on Tuesday.
Reporting by Peg Mackey and Zaida Espana in London, additional reporting by Florence Tan in Singapore; Editing by William Hardy