July 24, 2013 / 5:31 AM / 7 years ago

UPDATE 9-Oil falls on weak Chinese manufacturing data, profit taking

* China July flash HSBC PMI falls to 11-month low

* EIA reports crude, products stockpiles fall (New throughout, updates prices and market activity)

By Nicolas Medina Mora Perez

NEW YORK, July 24 (Reuters) - Oil prices fell on Wednesday, dragged by weak manufacturing data from China, with U.S. crude falling more steeply than Brent late in the session as traders took profits on the spread between the two contracts.

Crude prices fell early, after data showed that activity in China’s manufacturing sector slowed to an 11-month low in July, with faltering new orders pointing to weaker economic growth in the world’s No. 2 oil consumer.

The spread between international benchmark Brent and U.S. crude swung wildly again on Wednesday. Brent’s premium to U.S. oil futures narrowed to 56 cents in early European trade, then widened in the U.S. afternoon, settling at $1.80.

On Friday, the Brent-WTI spread swung to parity from near a $6 premium for Brent at the start of July and over $23 a barrel in February. Investors expect new U.S. pipeline capacity will alleviate a glut of oil at the Cushing, Oklahoma delivery point for the U.S. crude contract by shipping it to the Gulf Coast.

On Wednesday, Brent crude fell $1.23 to settle at $107.19 a barrel. On Tuesday, Brent settled up 27 cents.

U.S. crude, also known as West Texas intermediate, lost $1.84 to settle at $105.39, after ending 29 cents higher.

U.S. gasoline futures, however, held strong relative to the drops seen in the oil contracts. Gasoline was off just 0.22 percent on the day to settle around $3.05 a gallon.

U.S. Energy Information Administration data showed gasoline demand over the four weeks prior to July 19 rose by 3.1 percent from a year ago. Gasoline inventories decreased by 1.8 million barrels over the last week, according to the EIA, though they remained toward the higher end of the seasonal average range.

“We did have increased fuel demand, which should be supportive across the board and should provide a boost for the market,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.

The EIA data showed U.S. crude inventories fell again last week, off 2.8 million barrels. Over the past four weeks, crude stocks were down nearly 30 million barrels, but analysts said last week’s draw was much smaller than massive declines earlier in the month.

“It seems like the era of big, 10 million-barrel draws has come to an end,” said Bob Yawger, director of energy futures for Mizuho Securities USA Inc in New York.

CHINESE SLOWDOWN

THE HSBC/Markit PMI index, a preliminary version of which was released on Wednesday, is a survey of companies that measures the strength of the Chinese manufacturing sector. July was the third straight month with an under 50 PMI reading, a benchmark that indicates that the sector is contracting.

Many economists expect growth in the world’s No. 2 economy to slow, which could reduce demand for commodities and send oil prices lower, especially that of international benchmark Brent.

Most economists say China is likely to see a gradual decline in growth to about 7.5 percent this year. Yet Societe Generale sees “a non-negligible risk that China could land hard, with growth of less than 6 percent in 2013”.

Michael Haigh, the French bank’s head of commodity research, said such a “hard landing” for China could force oil down to around $75 per barrel. “The demand model suggests that Brent would drop about 30 percent (or) approximately a $30 decline.” (Additional reporting by Anna Sussman in New York; Simon Falush and Christopher Johnson in London; and Manash Goswami in Singapore; editing by William Hardy and Leslie Adler)

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