Brent crude futures dropped amid concern that slower Chinese growth and emerging equities markets sinking to their lowest level in more than four months will reduce oil demand.
Futures dropped as much as 0.7 percent in London. The MSCI Emerging Markets Index is set for its lowest close since Sept. 3. A private gauge of China’s manufacturing dropped to a six-month low in January. Currencies from Turkey to Argentina fell last week with emerging-market stocks on concern that growth is threatened amid reductions in stimulus from the U.S. Federal Reserve, which meets to review policy this week.
“The uncertainty in emerging markets will see demand in those economies slip back and even in the U.S. there is uncertainty ahead of the Fed’s meeting this week,” Michael Hewson, a market analyst at CMC Markets Plc in London, said by phone. “Oil hasn’t been as impacted by the volatility seen on other markets as there has been a bad weather premium holding it up, but that shouldn’t last much longer.”
Brent for March settlement declined as much as 80 cents to $107.08 a barrel and was at $107.25 on the ICE Futures Europe exchange as of 1:12 p.m. London time. The volume of all contracts traded was 25 percent below than the 100-day average.
WTI for March delivery gained 31 cents to $96.95 a barrel in electronic trading on the New YorkMercantile Exchange. It closed down 68 cents, or 0.7 percent, at $96.64 on Jan. 24. The spread between WTI and Brent on the ICE exchange narrowed to $10.20 a barrel.
Morgan Stanley says it is skeptical that a “blow-out” in the WTI-Brent crude spread is imminent, adding that it sees more risk of the differential narrowing in the very near term than widening, according to in an e-mailed note today.
The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in Hong Kong dropped 2.2 percent to the lowest level since Aug. 28 amid concern a slowdown will hurt earnings.
More than $995 billion has been erased from the value of emerging-market equities since the Fed signaled in May that it could start scaling back asset purchases. Fed policy makers meet Jan. 28-29 and will probably cut another $10 billion from their monthly bond-buying program, according to the median estimate of economists surveyed by Bloomberg this month.
WTI crude gained amid forecasts of freezing weather. Temperatures are expected to be about 8 degrees Fahrenheit (4 Celsius) below normal through Feb. 2, according to Matt Rogers, president of Commodity Weather Group in Bethesda, Maryland. The U.S. Northeast accounts for about 85 percent of U.S. heating oil sales, according to the Energy Information Administration.
Four of the 10 coldest days of the 21st century in the contiguous U.S. states occurred this month, Rogers said last week. Chicago was colder than the South Pole at the start of this month.
Arctic air surging through the central region of the U.S. will bring “icy conditions to the Deep South by mid-week,” according to the National Weather Service. Afternoon high temperatures are expected to be between 10 and 30 degrees Fahrenheit below normal through Jan. 29, it said on its website.
Ultra-low-sulfur diesel today gained as much as 1.5 percent to $3.1835 a gallon on Nymex, the highest since Aug. 30. Prices for the contract, a proxy for heating oil, have risen eight times in the past nine days.
U.S. inventories of distillate fuels, which includes heating oil, fell by 3.2 million barrels to 120.7 million in the seven days ended Jan. 17, the second week of declines, according to the EIA. Stockpiles were at the lowest level for that time of year since 2001.
Distillate inventories in the U.S. Northeast were at 33.4 million barrels in the week to Jan. 17, thelowest level for that time of year on record for data going back to 1990, according to EIA, the Energy Department’s statistical arm.
Natural gas climbed for a fifth day, rising as much as 5 percent to $5.442 per million British thermal units, poised for the highest close in almost four years on the Nymex today.