Oil rally falters on new concern over deteriorating industrial activity in China

Oil’s longest rally this year faltered on signs industrial activity in China is deteriorating, potentially hurting demand as the Organization of Petroleum Exporting Countries (Opec) pumps record amounts of crude.

Futures fell as much as 5.2% in New York.

China’s purchasing managers index dropped in January to a three-year low, with the official factory gauge signalling contraction for a record sixth month.

Output from Opec rose to 33.11m barrels a day last month following Indonesia’s readmission to the group.

“It looks like the big issue today is the negative Chinese economic data, which signals weaker demand,” said Bob Yawger, director of the futures division at Mizuho Securities USA in New York.

“Opec is showing no sign of curbing production, which will keep us well supplied.”

While oil capped a second weekly gain last week on talk that Opec other producers may co-operate to trim output, prices are down about 13% this year amid volatile global markets, brimming US stockpiles and the prospect of increased Iranian exports.

Chevron last week posted its first quarterly loss since 2002, which may presage a wave of write downs as other super-majors begin announcing results.

Exxon Mobil and BP are set to report later today.

Brent for April settlement declined $1.18, or 3.3%, to $34.81 a barrel on the London-based ICE Futures Europe exchange.

Manufacturing in the US shrank in January for a fourth consecutive month.

“Global economic growth is slowing and we aren’t seeing any action to reduce supply.

"Opec and other producers aren’t negotiating,just setting terms,”said Bill O’Grady at Confluence Investment Management.