Crude oil has been on the decline since yesterday after reaching highs on Wednesday following the EIA’s crude oil inventories report which indicated a drop of more than expected by 4.4 million barrels compared to the prior week’s decline of 1.7million barrels of oil. The forecast was for a drop of only 1.5 million.
Today after the news that China’s factory output grew at its slowest pace in 28 months and the dollar strengthened, oil began to fall, reaching a low of $93.45 from $95.79.
The market took a blow after the official purchasing managers’ index (PMI) for June came in lower than forecast at 50.9, as weaker global demand and a tighter monetary policy curbed production. This is a 28-month low. Economists’ expectations were for a figure of 51.3, according to a Reuters poll.
“There’s a concern that demand may drop off and that’s tempering the upside momentum that we’ve seen in the crude oil price this week,” said Michael Hewson, an analyst at CMC Markets.
Investors are nervous about any signs of a slowdown in the world’s powerhouse (China) the U.S. economic growth is already sluggish and Europe is struggling with its sovereign debt crisis.
However, crude oil spiked after the release of the US PMI at 14:00GMT, which rose better than expected. Crude oil rose to $94.91 from $93.45.