Oil falls back after weak China manufacturing data

US government data forecast to show crude stockpiles expanded in the world’s largest oil consumer, as Brent reached $52 a barrel.

Crude oil prices retreated yesterday after a three-day rally, responding to negative Chinese manufacturing data and an expected rise in US inventories.

World benchmark North Sea Brent crude futures were trading at about US$52.75 a barrel yesterday afternoon, about $1.40 lower for the day.

West Texas Intermediate (WTI) crude futures were down $1.81 in early New York trading yesterday at $47.41.

China’s official manufacturing purchasing managers index for August fell to a three-year low of 49.7 yesterday, down from 50 in July, pointing to a slowdown in the country’s manufacturing sector, affecting oil prices.

Meanwhile the US Energy Information Administration (EIA) is widely expected to announce a rise in oil inventories today.

The slip in prices comes after three sessions of strong gains, which saw Brent and WTI rise by more than 25 per cent since last Wednesday, helping both end the month of August in positive territory.

Prices rose on Monday after the EIA cut its estimates for US oil production for the year to date.

Traders were also buoyed by comments from Opec that suggested it might consider cutting output to shore up prices.

The organisation supplies about 40 per cent of the world’s crude oil.

Opec said that it “will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices”.

In the opening commentary of its monthly bulletin, released on Monday, Opec said: "As the organisation has stressed on numerous occasions, it stands ready to talk to all other producers. But this has to be on a level playing field. Opec will protect its own interests. As developing countries, its members, whose economies rely heavily on this one precious resource, can ill afford to do otherwise."

Indeed, Opec may act to keep Brent prices above the $50 mark, especially if demand from emerging markets falters, according to Bank of America Merrill Lynch.

“The incentive for Opec to cooperate increases exponentially on lower oil prices,” the bank said in a report released yesterday.

“Put differently, an Opec cut [loud or quiet] to keep prices above $50 per barrel makes good financial sense, in our view. As long as it does not encourage a competitive response, a low cost revenue maximising oligopolist would lower volumes to increase its total intake.”

Bank of America Merrill Lynch cut its forecast for Brent crude prices to $55 a barrel for next year, with prices forecast to rise to $61 by 2017.

Follow The National's Business section on Twitter