SINGAPORE: Brent crude inched lower on Monday, dropping further away from $86 a barrel as mixed Chinese data and a strong dollar pressured prices.
Although growth in China's vast factory sector rose to a three-month high in October as smaller firms saw more orders, according to a private survey, the numbers still pointed to a sluggish economy that is losing momentum.
The US dollar touched seven-year peaks versus the yen on Monday, dragging on oil prices as it makes the commodity more expensive for buyers holding other currencies. Brent crude for December delivery fell 28 cents to $85.58 a barrel by 0744 GMT.
The oil benchmark fell more than 9 percent in October, hitting its lowest in almost four years at $82.60 on Oct. 16. US crude fell 31 cents to $80.23 per barrel after losing more than 11 percent last month.
"The big driver that we are seeing is the strength of the US dollar.
That is something that would weigh on the potential upside of the oil price," said Ben Le Brun at OptionsXpress, although adding that the China data was another key factor. The final HSBC/Markit Manufacturing Purchasing Managers' Index (PMI) edged up to 50.4 in October, up from the September's reading of 50.2, but unchanged from a preliminary reading. While the headline number looked slightly better, growth rates slowed in several key areas heading into the fourth quarter, putting the government's full-year growth target of 7.5 percent further in doubt. "This week's manufacturing PMI would likely have some positive effect on crude prices as it confirms a slightly improving global demand, however, unlikely strong enough to generate enough momentum for a change in trend," said a research note by Phillip Futures.
A similar survey by China's National Bureau of Statistic(NBS) released on Saturday showed factory activity unexpectedly fell to a five-month low last month as firms struggled with slowing orders and rising borrowing costs.
The official Purchasing Managers' Index (PMI) from the NBS eased to 50.8 in October from September's 51.1, but was above the 50-point level that separates growth from contraction on a monthly basis.
The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI which concentrates more on smaller manufacturers in the private sector. Separately, an official reading on the services industry earlier on Monday showed growth in that sector hit a nine-month low in October as the cooling property sector weighed on demand.
As investors grappled with an overall brittle growth in China, oil supply from the Organization of the Petroleum Exporting Countries (OPEC) in 2015 is expected to be similar to this year, its secretary general said last week, adding to signs the group is in no hurry to cut output.
Iraq has managed to restore oil exports from its southern Basra terminals to 2.4 million barrels per day (bpd) on Sunday after bad weather had reduced its exports to 1.44 million bpd, a shipping source said.
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