The price of oil fell to a six-week low after a couple of negative factors came together with WTI crude oil on the New York Mercantile Exchange falling to the $90-$91 range, This was the fourth consecutive day of declines, making it the longest losing streak for oil since June.
A surge is U.S. oil inventories was the first factor affecting oil negatively. Inventories rose by 8.5 million barrels last week as production from the gulf of Mexico resumed following Hurricane Isaac. Analysts had expected a rise in inventories of only 1 million barrels. This gain in overall oil inventories is perceived as negative because the demand side of the equation in the United States is still rather weak.
Even more important than the rise in U.S. oil inventories was the latest international economic news. Manufacturing activity in China may contract again for the 11th month in a row, according to a purchasing managers index put out by HSBC. The index came in with a preliminary reading of 47.8, compared to final reading of 47.6 in August. This puts this gauge on its longest run below 50, the dividing line between economic expansion and contraction, in the survey’s eight-year history.
In addition, Japan’s exports fell for the third month in a row in August, dropping by 5.8% from year earlier levels. The data points taken together from China, the global economic engine in recent years, and Japan call into question both global economic growth and the demand for oil. China and Japan together last year accounted for 37% of the world’s oil consumption, according to BP’s Statistical Review of World Energy.
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