Brent crude edged lower on Monday after Chinese data pointed to a further slowdown
Brent crude edged lower on Monday after Chinese data pointed to a further slowdown in the world's number two oil consumer, but prices stayed above US$114 per barrel as investors remained optimistic that more global economic stimulus measures may be on the way.
It was a shaky start to the month for Brent, which rose nearly 2 percent on Friday to end August up more than 9 percent. Trading activity is expected to be limited, with US markets closed for the Labor Day holiday.
Traders are eyeing the European Central Bank's meeting on Thursday and US non-farm payrolls data due on Friday, but the latest Chinese economic indicator weighed on sentiment.
Two complementary surveys of China's factory sector showed it had been hit by slowing new orders, suggesting the slowdown in the world's biggest energy consumer may run into the third quarter.
"The data was confirmation of the weakness in the Chinese economy, and there was a little correction after the surge on Friday," said Yusuke Seta, a Tokyo-based broker at Newedge. "We are now waiting for the ECB meeting and US jobs data. Until midweek, [price] movements will be very limited and narrow."
Brent October futures had slipped 42 cents to US$114.15 per barrel by 0648 GMT, steadying after jumping nearly US$2 on Friday. US crude futures eased 29 cents to US$96.18.
Both contracts rose more than 9 percent in August, driven by supply concerns and hopes for stimulus from the Federal Reserve.
China's official factory purchasing managers' index (PMI), one of the early indicators of the state of the economy, fell to a lower-than-expected 49.2 in August, the National Bureau of Statistics said on Saturday.
It was the first time since November 2011 that the number has fallen below 50, which separates expansion from contraction, and follows last week's flash PMI for August, which hit a 9-month low.
Together, the results of the two manufacturing surveys could strengthen the case for further policy steps to bolster growth, analysts said.
"China is a long way off from being a "White Knight" of sorts for the global economy," Vishnu Varathan, a market economist at Mizuho Corporate Bank, said in a report. "On the contrary, China may be preoccupied grappling with its own problems."
Further direction could come from US data, which may throw some light on the Fed's plans to ease policy further.
Although the minutes of the last meeting of Fed policymakers suggested the central bank was leaning towards further stimulus to boost the economy, a keenly awaited speech on August 31 by Chairman Ben Bernanke offered no specifics.
Hopes for easing remained intact as Bernanke said stagnation in the US labour market was a "grave concern", leading investors to expect that unemployment data due on Friday may provide the Fed with a trigger.
Quantitative easing is seen as a positive for commodities and other hard assets as it drives down the dollar and adds liquidity.
The ECB's meeting on Thursday will, however, be monitored more closely as the magnitude of the euro zone's problem gives it the ability to derail markets across the globe.
Expectations are high after ECB Chairman Mario Draghi in July pledged to do whatever was necessary to preserve the euro, sparking hopes the central bank may announce details of a bond-buying plan this week.
"The adequacy of [the ECB's] plan will have a key bearing on confidence, (while) signs of continued improvement [in jobs] may have a perversely negative impact for markets, in potentially delaying further Federal Reserve stimulus initiatives," said Ric Spooner, chief market analyst at CMC Markets.
Investors were also monitoring a debate about the release of strategic oil reserves to cool prices, a plan mooted by the US and supported by Britain and France, but opposed by Germany and Italy.
In Norway, a last-minute wage deal between oil drill workers and their employees has also helped keep prices subdued by averting a second strike in two months.
In July, a 16-day strike among Norway's oil production workers halted 13 percent of production before the government forcibly stopped it to protect the country's reputation as a stable exporter.
Tension persisted between Israel and Iran in the Middle East, a critical source of crude supplies.
Israeli Prime Minister Benjamin Netanyahu on Sunday urged world powers to set a "clear red line" for Tehran's atomic programme that would convince Iran they were determined to prevent it from obtaining nuclear arms.
His remarks suggested a growing impatience with Israel's main ally, the United States, and other countries that have been pressing him to give diplomacy and sanctions more time to work and hold off on any go-it-alone strike on Iran.