Sharp fall in China's trade flows heighten concerns about global demand for fuel
Brent crude fell below $113 a barrel on Friday as a sharp slowdown in China's trade flows heightened worries about demand for fuel, putting to one side hopes of stimulus measures aimed at lifting global growth that could boost oil use.
China's July exports rose just 1 percent from a year earlier, undershooting forecasts by a large margin, as demand faltered at its two biggest foreign customers - the European Union and the United States. But the latest trade statistics added to a downbeat set of monthly data, boosting expectations of fresh action from Beijing to shore up the economy.
"The trade balance data missed the mark, raising the question of commodities demand in the second half, and provided some downside to commodities prices," said Tim Waterer, a senior trader at CMC Markets in Sydney.
"But it's not entirely bad how the market is interpreting this news. The weakness in China's economic data leaves the door open for further rate cuts by the central bank that could kick start the economy again."
Brent crude for September delivery fell 45 cents to $112.77 by 8.46am UAE time while US crude was at $93.02, down 34 cents.
Oil is still set to rise for a second straight week as improved jobs data from the United States lifted the fuel demand outlook in the world's largest oil consumer and optimism grew for more monetary easing policies from the euro zone and China to support global growth.
Worries about how high oil prices could add to economic woes may limit gains, Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm, said.
"People are questioning the result of this rally," he said.
China's crude imports in July rose 12 percent from a year earlier but were the lowest since last November.
OPEC said on Thursday it may have to reduce its forecast for growth in world oil demand in 2013 by 20 percent on a vague and turbulent outlook for the global economy.
Tighter North Sea supply due to field maintenance and tension in the Middle East also kept Brent higher, widening its spread to West Texas Intermediate to nearly $20 a barrel, the widest since mid-May.
"We have seen quite a good rally there that could potentially push out to $22-$23 on issues in the Middle East and continued optimism within Europe," Barratt said.
Reuters market analyst Wang Tao said the spread was expected to widen to $24.34 a barrel in the next four weeks if it broke through a support at $20.49.
North Sea oil output is set to plunge 17 percent in September due to oilfield maintenance and natural decline, adding to signs of a shortage that may artificially lift prices of Brent, a global oil-pricing benchmark.
Tropical Storm Ernesto weakened as it traveled inland from the Gulf of Mexico on Thursday, but it sent wind gusts and showers across the state of Veracruz, home to some of Mexico's busiest ports and oil installations.