* Emerging-market selloff hits oil, China economy worries
mount
* U.S. distillate stocks drop on sustained cold – EIA
* Expectations of more U.S. Fed tapering hit oil
(Updates prices, edits)
By Lin Noueihed
LONDON, Jan 24 (Reuters) – Global oil prices briefly tumbled
below $107 a barrel on Friday, tracking a selloff in stocks and
emerging markets as worries mounted over an economic slowdown in
China, the world’s second-largest oil consumer.
Expectations that the U.S. Federal Reserve will taper its
stimulus package next week also weighed on prices.
Brent crude was down 28 cents at $107.30 by 1410
GMT, paring declines that saw it drop more than $1.20 earlier in
the day.
Despite the fall, the international oil benchmark was still
heading for its biggest weekly gain since Dec. 20.
U.S. oil, or WTI, also pared earlier declines to
trade about 5 cents lower at $97.27. It settled 59 cents higher
on Thursday and was still set to record its biggest weekly rise
since Dec. 6.
“There is a spike in risk aversion. We have seen a fall
across all risky assets and crude is one of them,” said Carsten
Fritsch, analyst at Commerzbank.
“Stocks are down. Emerging-market currencies are down. The
Chinese data was the trigger but it is a wider emerging-markets
issue as emerging markets were the main driver of demand
growth.”
China’s factory sector shrank in January for the first time
in six months, a preliminary survey showed on Thursday,
suggesting a weak start for the economy in 2014.
Investors fled markets in Asia and Latin America, fearing
the impact of slower growth in China and on expectations the Fed
will cut further its bond-buying stimulus at a policy meeting
next week.
Brent and U.S. oil futures had started the day strongly as
bitter cold in the United States sapped stockpiles of crude and
distillates in the world’s largest consumer of oil and drew
heating oil imports from Europe, Russia and Asia.
“We saw crude move higher yesterday due to the inventory
data but I tend to see that as short-term. Long-term, the
fundamentals for oil remain to the downside,” said Michael
Hewson, chief markets analyst at CMC Markets in London.
“The Iranian president’s comments at Davos yesterday were
very positive in terms of taking the risk premium off Brent …
The demand outlook for Brent remains fragile.”
President Hassan Rouhani said on Thursday Iran was
determined to reach a comprehensive deal on its nuclear
programme so it can develop its battered economy, inviting
Western companies to seize opportunities now and raising
expectations of an eventual settlement.
SUPPLY OUTLOOK
A monthly report from industry group American Petroleum
Institute (API) also showed a rise in U.S. petroleum product
demand, reflecting a continued improvement in domestic
manufacturing and the broader economy.
Demand in December rose 5.8 percent year-on-year to 19.2
million barrels per day, the API said.
Improved demand prospects in the United States coupled with
the opening of a key pipeline have helped the spread between
Brent and WTI, a popular trade for speculators last year, narrow
to less than $10 for the first time in months.
The spread touched $9.83 on Friday, its lowest since Nov. 8,
a change analysts have partly attributed to the opening of a
pipeline from the congested Cushing crude oil storage hub to a
cluster of refiners on the U.S. Gulf Coast.
The line is a major step toward easing the gap between
depressed inland U.S. crude oil and much higher global prices
paid on the coast.
“We will look for some stability at current levels while we
also feel that the next $2 move is apt to show a narrowing
rather than an expansion,” Jefferies Bache analysts said in a
note to clients.
(Additional reporting by Manash Goswami in Singapore; Editing
by Dale Hudson and Keiron Henderson)
UPDATE 5-Oil tumbles on worries over demand in emerging markets
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