Tokyo - Oil prices fell in Asia on Tuesday, surrendering some of their big gains of a day earlier after data showed manufacturing activity in top energy consumer China contracted in August.
The contraction in the Purchasing Managers' Index (PMI) for China's factory sector fuelled concerns about the health of the world's second biggest economy.
The US benchmark, West Texas Intermediate (WTI) for October, fell $1.40 to $47.80 and Brent crude for October dropped $1.39 to $52.76 barrel in afternoon Asian trade.
WTI had surged 8.8 percent and Brent advanced 8.2 percent on Monday as the US government lowered its domestic production estimate and the Opec cartel said it was “ready to talk” to producers about prices, which had fallen last month to their lowest levels in six and a half years.
The PMI for China's key manufacturing sector slumped to a three-year low of 49.7 in August, an official index showed, the latest sign of slowing growth in the country which is a major engine for global economic growth.
The reading was worse than the 50.0 reading in July and the first time it had showed a contraction since February. A figure above 50 signals expansion in the sector, while anything below indicates shrinkage.
US financial giant Citigroup said in a market commentary that China was driving prices of commodities, including oil, “as never before, and it is driving them lower”.
“We expect China to continue to exert downward pressure on commodity prices in the coming months, representing one of the three key drivers for commodity prices.”
Other analysts said the global crude oversupply remains a drag on prices despite talk by the US and the Organisation of the Petroleum Exporting Countries (Opec) of possible cuts in elevated production levels.
“Firstly, talk is cheap,” said Nicholas Teo, market analyst at CMC Markets in Singapore.
“Secondly, even though US production has started to fall, June production was still up 7.1 percent over a year ago,” he said in a market commentary.
“In the near term, there is likely to be little or no relief on either the supply or demand fronts,” said business consultancy IHS.
“In particular, the oversupply problem could take a long time to correct.”
AFP