Brent falls below $102 on weak Chinese factory data

Sun Jun 30, 2013 11:01pm EDT

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By Florence Tan

SINGAPORE, July 1 (Reuters) - Brent crude slipped below $102 a barrel on Monday, as weak factory data from China reinforced concerns of slower growth in the world's second-largest economy, dampening the outlook for oil demand.

China's manufacturing activity slowed in June, with a private survey by HSBC hitting the lowest in nine months, while the bank's economist said the third quarter will be challenging on tighter credit.

Brent crude futures slipped as low as $101.63 a barrel after the Chinese data. The August contract was down 45 cents to $101.71 a barrel by 0224 GMT. Front-month Brent closed lower on Friday for the third straight quarter, the longest stretch of quarterly declines in 15 years.

U.S. crude futures for August fell 40 cents to $96.16 a barrel.

A stronger dollar also weighed on oil as investors bought the currency on expectations that the Federal Reserves will start rolling back its bond-buying programme.

A firmer U.S. currency makes dollar-denominated commodities such as Brent more expensive for holders of other currencies

The Chinese factory data were another indication that policy makers in Beijing are comfortable with slower economic growth, said Lee Chen Hoay, an analyst at Phillips Futures.

"We're likely to see China growing slower going forward and that is going to be reflected in slower oil demand growth," Lee said.

Hedge funds and other large speculators slashed their bets on rising U.S. crude oil prices in the seven days to June 25, regulatory data showed on Friday.

The spread between U.S. crude and Brent CL-LCO1=R held at its narrowest since January 2011, as improved logistics allowed excess oil to flow out of the delivery point for WTI at Cushing, Oklahoma.

Canadian crude supply has also been disrupted by significant flooding in Alberta and likely increased demand for U.S. crude, Barclays analysts said in a note.

Oil supply from OPEC and the United Kingdom fell in June on lower output from Britain's Buzzard field and as a Reuters survey showed that OPEC pumped less crude due to disruptions in Libya and Nigeria.

Mexican crude production hit its lowest in nearly two years in May, while exports were their weakest in more than two decades, official data showed.

In the Middle East, investors are closely watching whether Iran's president-elect Hassan Rouhani can improve the country's antagonistic relations with the West.

The United States has maintained its tough stance on Iran, with its top U.S. energy official saying on Sunday that he believed the oil market could cope with any further reduction of Iranian oil exports from the tightening of sanctions on Tehran over its nuclear programme.

(Reporting by Florence Tan; Editing by Ed Davies)

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