SINGAPORE: Oil prices retreated in Asia Wednesday after a key measure of manufacturing in China fell to its lowest level in more than six years, signaling weaker demand in the world’s top energy consumer.
The prospects of weaker demand come as the oversupplied global oil market is already troubled by expectations Iranian crude will return within months if Tehran is found to have complied with a deal to curb its nuclear ambitions.
US benchmark West Texas Intermediate for November delivery, a new contract, fell 17 cents to $46.19 in afternoon trade. Brent crude for November declined 22 cents to $48.86.
“Crude oil prices were weighed by a double whammy of increasing prospects of the return of Iranian oil on the market, as well as potential fall in demand from China after the Chinese flash Purchasing Managers’ Index (PMI) fell to a six-year low,” said Bernard Aw, market strategist at IG Markets in Singapore.
The closely watched PMI for Chinese factory activity came in at 47 in September, down from August and the lowest since March 2009.
A result below 50 indicates the manufacturing sector is contracting, while anything above shows expansion.
Traders are closely watching the progress on Tehran’s compliance over its deal with world powers that would see the lifting of sanctions, allowing it to export more oil.
Iran said on Monday it had independently collected samples at a suspect military site where illicit nuclear work is alleged to have occurred and later handed them to UN inspectors who were not physically present.
Deflecting potential criticism, the chief of the UN’s International Atomic Energy Agency said “the integrity of the sampling process and the authenticity of the samples” was not compromised.
“Iran is more likely an extra supply risk now that the process for winding back sanctions has begun,” British bank Barclays said in an analysis.
The market is also waiting for a report to be released later Wednesday on US commercial crude inventories—a closely watched measure of demand in the world’s biggest economy.