Oil retreated today as China's factory growth slowed to a five-month low, signalling demand may not rise as quickly in the world's second-largest oil user, but Egypt's social upheaval kept Brent crude firmly above $100.
Monetary tightening to contain inflation caused China's purchasing managers' index (PMI), a manufacturing indicator, to fall to a lower-than-expected 52.9 in January from 53.9 in December, official data showed.
Brent crude for March slid 45 cents to $100.56 a barrel at 0435 GMT, after topping $100 for the first time since October 2008 yesterday, when prices touched an intraday high of $101.73. U.S. crude shed 6 cents to $92.13.
"$100 is not a final target" for Brent, said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. "$110 and $115 could be reached by the end of the year. People now have to take geopolitics into consideration. Even if nothing happens in Egypt, it allows investors to take on additional risk and develop long positions in the hope of making more money."
Egypt's anti-government protesters, scenting victory after president Hosni Mubarak agreed to discuss sweeping political reforms, rallied support for what they hope can be a million-strong march for democracy today.
Mr Mubarak's newly appointed vice-president began talks with opposition figures and the army declared the protesters demands "legitimate" and said it would hold its fire.
At the moment, Egypt's unrest poses no direct threat to ships passing through the strategic Suez Canal, connecting the Red Sea with the Mediterranean, a senior official with London's marine insurance market said on Monday.
"While the current tensions have raised some concerns about an eventual impact on logistics, we note that physical oil supply has not been affected," Credit Suisse analysts including Stefan Graber said. "While short-term risks remain skewed to the upside, we think that the current price strength is likely to ease once the situation in Egypt normalises. Spare Opec production capacity remains ample, which should prevent a rapid tightening of the market balance."
The Organization of the Petroleum Exporting Countries says it holds about 6 million barrels per day (bpd) of idle production capacity - equal to 7 per cent of world demand - that it could tap to fill any shortage. Most of this capacity is held by Saudi Arabia.
Opec is concerned by unrest in Egypt but sees no need for an immediate boost in its output as there is no shortage of oil, the group's top producer Saudi Arabia and its leading official said yesterday.
A Reuters poll at the end of last year showed Opec would be called upon to open the taps earlier than previously expected in 2011 as near-record oil demand growth in 2010 combines with more modest growth this year, easily absorbing supply increases from outside the group.
US crude inventories likely rose 2.8 million barrels last week on higher imports, while colder weather drew down distillate stockpiles by 1.2 million barrels, a Reuters poll of analysts showed.
The industry-funded American Petroleum Institute will issue its weekly data on US oil inventories later today, followed by the government's Energy Information Administration report tomorrow.
ICE Brent, the marker for waterborne oil traded across the Atlantic basin, Africa and parts of Asia, last week traded at a near-record premium of $12.50 a barrel to US benchmark West Texas Intermediate, a landlocked domestic stream that can get chronically disconnected from global markets. That premium has now narrowed to about $8.50.
Before yesterday's gains, Brent crude had last traded above $100 a barrel on October 1st, 2008, the only year in which any front-month oil futures benchmark had surpassed that level.
ICE Brent first touched $100 on February 26th, 2008, almost two months after benchmark WTI futures first reached triple digits on January 2nd, 2008.
Reuters
