Oil slumps after China manufacturing data raises demand worries
Oil prices slumped today on indications that manufacturing activity in China has slowed and concerns over Europe's debt problems.
Fears over the debt crisis in Europe intensified after Fitch cut Greece's rating from BB+ to B+ at the end of last week, while Standard & Poor's decided to downgrade Italy's outlook from "stable" to "negative" on Saturday. S&P commented that Italy's growth prospects were weak and the country's prospects for reducing its general government debt have diminished.
In addition to that, the crushing defeat of Spain's ruling Socialist party in Sunday's elections added to uncertainty over the country's future economic policy and its ability to tackle its massive sovereign debt.
The euro fell sharply against the US dollar on the news, further dampening demand for the dollar-denominated crude, making it more expensive for holders of other currencies.
A preliminary reading of HSBC's China purchasing managers index (PMI) put more pressure on crude oil futures, showing a decline from 51.8 in April to 51.1 in May, the lowest level in nearly a year. China is the world's second largest energy consumer behind the US.
US light, sweet crude for July delivery, which is currently the most actively traded contract on the New York Mercantile Exchange (NYMEX), dropped to US$96.95/barrel, while August crude fell to US$97.35/barrel.
July Brent crude retreated to US$109.27/barrel on the ICE Exchange.
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