Oil Prices Fall as Manufacturing Output Declines

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  • TEMPO.CO, Jakarta - Oil prices have fallen in the United States (US) by more than US$3 this morning, Jakarta time, after a manufacturing data from China and Europe indicated a decline in production output amidst the abundance of supplies throughout the world.

    The prices of the US benchmark - the West Texas Intermediate (WTI) or also known as light sweet crude oil - for October deliveries slid down by US$3.08 to trade at US$92.88 per barrel at the end of trading at the New York Mercantile Exchange (NYMEX) yesterday, reaching its lowest level since January. NYMEX was closed on Monday in observance of Labour Day in the US, AFP reported.

    The price of the European benchmark - Brent North Sea oil - for deliveries beginning in October remained stable at US$100.34 per barrel. Yesterday morning, Brent prices had fallen to US$100.17 per barrel - the lowest level recorded since May 2013.

    Officials in China, the largest oil consumer in the world after the US, said on Monday that its Purchasing Managers’ Index (PMI) - which officially indicates the level of its manufacturing activities - had dropped to 51.1 in August, from 51.7 in July. The value marked the first decline in China's PMI since February 2014.

    A PMI value above 50 indicates a growing output, whereas any value below 50 indicates a contracting economy.

    The Eurozone's PMI - released by Markit - fell to a 13-month low at 50.7 in August, after reaching 51.8 in July.

    Conversely, the US manufacturing index showed a healthy increase in output, registering at 59.0 for August 2014. That being said, the Institute of Supply Management (which issues the PMI for the US) said the increasing manufacturing output in the US was not significant enough to help prop up global oil and gas prices.

    "Geopolitical conflicts continue to persist throughout the world, but at the moment the focus lies on the seemingly weaker fundamental prospects for the coming years," said Matt Smith, an analyst at Schneider Electrics.

    "The oil market is under pressure - reflected by market sentiments which is influenced by worries over declining demands amidst an abundance of unsold manufactured goods," said Tim Evans, an energy analyst from Citi Futures.

    Experts are also saying that the stronger greenback is also a contributing factor to the drop in the prices of oil on Tuesday. Since oil is priced in US Dollar, the commodity becomes more expensive outside of the US when the currency trades at a better position against other major currencies, hence causing demand to drop.