Oil slips as slowing Chinese demand overshadows Libya disruption

In this Wednesday, April 19, 2017 photo, visitors look at the Qiantu K50 displayed at the Shanghai auto show. Qiantu is part of a wave of fledgling automakers - all backed at least in part by Chinese investors - that are propelling the electric vehicle industry's latest trend: ultra-high-performance cars. (AP Photo/Ng Han Guan) less In this Wednesday, April 19, 2017 photo, visitors look at the Qiantu K50 displayed at the Shanghai auto show. Qiantu is part of a wave of fledgling automakers - all backed at least in part by Chinese investors ... more Photo: Ng Han Guan, STF Photo: Ng Han Guan, STF Image 1 of / 3 Caption Close Oil slips as slowing Chinese demand overshadows Libya disruption 1 / 3 Back to Gallery

Oil dropped as fears of falling oil demand in China overshadowed news that Libya’s crude supply was disrupted.

Futures fell 1 percent in New York. China’s oil refining dropped the most in three years in July, while crude output retreated from the highest this year. Libya’s biggest oil field, Sharara, cut output by more than 30 percent because of security threats, a person familiar with the matter said. Meanwhile, the dollar strengthened, eroding the lure of commodities as a store of value.

"We’re seeing some strength in the dollar, and the preponderance of news seems to be favoring the bears right now," Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said by telephone. "If you look at the China data this morning, when it came to the China refinery runs being down in July, that’s adding to the perception of slowing demand, and it’s offsetting the concerns about Libyan oil production."

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Oil has fluctuated below $50 a barrel as investors weigh rising global supply against output curbs from the Organization of Petroleum Exporting Countries and its allies. Data on China’s sliding refinery runs are stoking fears that the world’s second-largest oil consumer will taper its appetite.

In the U.S., producers keep drilling for more oil, with the number of active rigs at its highest since April 2015, data from Baker Hughes Inc. showed Friday. Amid all the signs of a persistent supply glut, famed trader Andy Hall said goodbye to the oil market as the outlook for prices worsens.

West Texas Intermediate for September delivery settled at $47.55 a barrel, down $1.27 on the New York Mercantile Exchange.

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Brent for October settlement fell $1.11 to $50.99 a barrel on the London-based ICE Futures Europe exchange, after sliding 0.6 percent last week. The global benchmark crude traded at a premium of $3 to October WTI.

Chinese oil processing in July dropped 4.4 percent from the previous month to about 10.76 million barrels a day, according to Bloomberg calculations based on data released Monday by the National Bureau of Statistics.

"The China news for oil is a concern," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. "Beijing is trying to land an aircraft being buffeted by strong crosswinds. After goosing the engine earlier this year, now they’re tapping the brakes a little bit."

Hall, a trader nicknamed "God" by his peers, said he decided to close his flagship hedge fund amid a deteriorating outlook for prices next year and the “frustrating” dominance of algorithmic traders.

‘Sign of Weakness’

"The fact that OPEC has had to talk about further extending its production cuts is ultimately a sign of weakness, not of strength,” Hall said in an Aug. 1 letter to investors that was reviewed by Bloomberg News. There’s no clear view on how shale supply will respond to shifts in the market and therefore no consensus on a long-term price anchor for oil, he said.

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The news that Libya’s Sharara field output has dropped to 200,000 barrels a day, while loadings at Zueitina ceased, wasn’t enough to dispel the pessimism.

"At the end of the day, we’re still stuck in this trading range we’ve been in for two weeks,” Michael Hiley, Head of OTC Energy Trading at New York-based LPS Futures, said by telephone. While OPEC’s agreement is trying to cap supply, U.S. shale producers are quick to ramp up production as prices rise, he says.

Oil-market news:

Cushing crude stocks rose 700,000 barrels last week, Bloomberg forecast shows.

OPEC last month pumped the most crude this year as supply from Libya, which is exempt from the group’s output-cut deal, rebounded to about 1 million barrels a day.

--With assistance from Ben Sharples Grant Smith and Jessica Summers

To contact the reporter on this story: Nico Grant in New York at ngrant20@bloomberg.net.To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada, Stephen Cunningham

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