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WTI Crude Falls as Global Factory Data Signals Lower Demand

Feb. 3 (Bloomberg) -- West Texas Intermediate crude fell for a second day after manufacturing gauges in China and the U.S. dropped, signaling reduced fuel demand.

Futures decreased as much as 1 percent. The Institute for Supply Management’s U.S. factory index dropped more than forecast last month. China’s Purchasing Managers’ Index slipped to a six-month low in January, a sign that government efforts to rein in credit will cool growth in the biggest oil-consuming country after the U.S. WTI’s discount to Brent shrank to the narrowest level since October today.

“Continuing worries about the global economy are putting pressure on prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “WTI was able to brush off the Chinese PMI earlier today but couldn’t ignore the weak ISM.”

WTI for March delivery dropped 94 cents, or 1 percent, to $96.55 a barrel at 11:13 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 13 percent above the 100-day average.

Brent for March settlement decreased 99 cents, or 0.9 percent, to $105.41 a barrel on the London-based ICE Futures Europe exchange. The volume of all futures traded was 7.6 higher than the 100-day average.

The European benchmark’s premium to WTI narrowed to as little at $8.09, the least since Oct. 18 on an intraday basis.

Slumping Orders

American factories expanded in January at the weakest pace in eight months as orders slumped. The Institute for Supply Management’s factory index decreased to 51.3 from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. The January figure was less than the most pessimistic forecast in a Bloomberg survey in which the median estimate was 56. Readings above 50 indicate expansion.

China’s manufacturing PMI was at 50.5 last month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing. The reading in December was at 51. A separate report released today on the non- manufacturing industry showed the PMI falling to 53.4 in January from 54.6 in December.

WTI rose 0.9 percent last week as freezing U.S. weather boosted demand for heating fuel in the U.S. Money managers increased net-long positions, or wagers on rising prices, on futures and options by 13 percent in the week ended Jan. 28, the most since July, Commodity Futures Trading Commission data show.

Hedge Funds

Hedge funds and other money managers increased net bullish bets on Brent by the most in more than a month, according to data from ICE Futures Europe. Wagers that prices will rise, in futures and options combined, outnumbered short positions by 98,271 lots in the week ended Jan. 28, the exchange said in its weekly Commitments of Traders report.

The WTI 100-day moving average is $98.10, while the 200-day moving average is $99.21. The 14-day relative strength index for WTI reached 56.6273 at 10:07 a.m., according to data compiled by Bloomberg. Investors typically start selling contracts when the reading is more than 70, a sign a market is overbought.

“We’re very close to the 100-day moving average, which is $98.10, and then the 200-day,” Yawger said. “The RSI is at about 56, which means there is plenty of room to the upside. WTI should soon test $100.”

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