LONDON--Oil prices slipped on Monday amid concerns that oil's
February rally isn't sustainable.
Crude oil futures rose last month, snapping a seven month losing
streak, on hopes that supply cuts in the U.S. will alleviate the
global glut that drove prices off a cliff last year. But analysts
cautioned that there are little signs yet of declining production
and prices could fall again before they recover.
On Monday, Brent crude for April delivery fell 0.6% to $62.21 a
barrel on London's ICE Futures exchange. On the New York Mercantile
Exchange, light, sweet crude futures for delivery in April traded
down 0.8% at $49.34 a barrel.
Brent, the global oil benchmark, gained 18% in February
registering the sharpest monthly increase since May 2009. It
outpaced U.S. oil prices which rose 3.2% for the month pressured by
record-high inventory levels.
Prices have been supported by a fall in the number of oil
drilling rigs in the U.S., which is seen as a leading indicator of
production. But while the rig count is down 31% from a year ago,
the pace of decline slowed last week, falling by 33 rigs to 986,
data from Baker Hughes showed on Friday.
Analysts at Commerzbank said that the slowdown can be explained
by the recent strength in prices. "If this trend were to continue,
the expectation of a noticeable reduction in U.S. oil output in the
second half of the year could be disappointed," the bank said in a
note to clients.
Meanwhile, latest Chinese manufacturing data didn't provide much
optimism for oil-demand growth.
Over the weekend, China's official manufacturing purchasing
managers index for February posted a contraction for the second
consecutive month. Earlier Monday, the HSBC China manufacturing PMI
rose to a final reading of 50.7 in February from 49.7 in January.
Additionally, China's central bank cut interest rates and
economists expect more easing measures to follow this year.
China's net imports of petroleum products in January were down
sharply by 48% from a year earlier, due to weak domestic demand,
increased domestic refinery capacity and changes to import taxes,
analyst Ivan Szpakowski at Citi Research said.
According to analysts at Barclays, oil prices will have to move
lower to create a meaningful impact on supply reductions, before
the market can balance in the first half of the year. The bank sees
Brent averaging $47 a barrel in the second quarter, down from this
quarter's anticipated $53 average.
"The necessary great rebalancing of the oil market is still
months away, and we think that the oil price is likely to test its
mid-January lows again soon," Barclays said.
Nymex reformulated gasoline blendstock for April--the benchmark
gasoline contract--fell 0.5% to $1.9684 a gallon, while ICE gas oil
for March changed hands at $598 a metric ton, up $4.25 from
Friday's settlement.
Eric Yep contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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