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Oil drops on weak global manufacturing data

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(Globalpost/GlobalPost)

World oil prices slid on Tuesday as disappointing global manufacturing data sparked concern about the strength of future energy demand, particularly in China, analysts said.

Brent North Sea crude for delivery in June dropped 54 cents to $99.85 a barrel in late afternoon deals in London, clawing back heavier losses from earlier trade.

New York's main contract, light sweet crude for June, shed 16 cents to $89.03 per barrel.

"Commodities took a tumble this morning," said Fawad Razaqzada, analyst at trading firm GFT Markets.

"Concerns over demand were exacerbated after the release of disappointing manufacturing PMI readings from China and Germany."

He added: "The key point is that with both a weak demand outlook and abundant supply, the risks remain skewed to the downside."

Global bank HSBC said preliminary data showed manufacturing activity in China slowed in April due to sluggish foreign demand.

Its initial purchasing managers' index (PMI) for the month came in at 50.5, from a final 51.6 in March. A reading above 50 indicates growth and anything below points to contraction.

In another piece of gloomy news, a key survey showed that private sector business activity remained weak across the eurozone in April, underscoring a gloomy medium-term outlook for the 17-state economy,

The Markit Eurozone Composite Purchasing Managers Index (PMI) registered 46.5 points, the same reading as March and well below the boom-and-bust line of 50 points indicating growth or recession.

It was the 19th time in 20 months that the survey of thousands of eurozone companies signalled a contraction in the single currency area's economy, with the powerhouse German economy seeing its first drop since November.

"PMIs were certainly disappointing today, but then the market was already in a bearish mode and given lack of fundamental developments (so) we trade off macro headlines really," said VTB Capital analyst Andrey Kryuchenkov.

He added that the market's next focus would be on Wednesday's weekly snapshot of energy inventories in the United States, which is the world's biggest consumer of crude oil.

The Chinese PMIs comes just over a week after official data showed the Asian powerhouse economy expanded by 7.7 percent in the January-March quarter. That was slower than the 7.9 percent in the previous three months and below the 8.0 forecast.

Crude prices had last week slid on the Chinese GDP, with Brent falling to a nine-month low before recovering on market speculation that the Organization of the Petroleum Exporting Countries (OPEC) plans to cut output.

"Traders are reading the Chinese PMI data in line with last week's GDP (gross domestic product) figures, giving oil some pressure on the downside," David Lennox, resource analyst at Fat Prophets in Sydney, told AFP.

"There are also concerns over oil demand, as strong growth in China was expected to offset weaker demand in the United States and Europe."

China is the world's biggest energy-consuming nation and the health of its economy is closely watched by oil traders.

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http://www.globalpost.com/dispatch/news/afp/130423/oil-drops-weak-global-manufacturing-data