Oil’s longest rally this year faltered on signs industrial activity in the world’s biggest energy consumer is deteriorating and as OPEC pumps a record amount of crude.
Futures lost as much as 2.5 percent in New York to snap a four-day advance. China’s purchasing managers index dropped in January to a three-year low, with the official factory gauge signaling contraction for a record sixth month.
Output from the Organization of Petroleum Exporting Countries rose to 33.11 million barrels a day last month as Indonesia’s membership to the group was reactivated, data compiled by Bloomberg show. U.S. drillers idled rigs for a sixth week, Baker Hughes Inc. said.
“Unless we begin to see some tangible news emerge on production cuts, we’re getting toward the limits of this rally,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “Oil will struggle to get past $36.”
While oil capped a second weekly advance Friday on speculation that OPEC and producers outside the group may cooperate to trim output, prices are down about 11 percent this year amid volatility in global markets, brimming U.S. stockpiles and the prospect of increased Iranian exports.
Chevron Corp. has posted its first quarterly loss since 2002, which may presage a wave of writedowns as other super-majors begin announcing results. Exxon Mobil Corp. and BP Plc are set to report Tuesday.
West Texas Intermediate for March delivery dropped as much as 84 cents to $32.78 a barrel on the New York Mercantile Exchange and was at $32.90 at 7:42 a.m. London time. The contract climbed 40 cents to $33.62 a barrel on Friday to cap a 4.4 percent weekly increase. Total volume traded was more than three times the 100-day average.
Brent for April settlement declined as much as 85 cents, or 2.4 percent, to $35.14 a barrel on the London-based ICE Futures Europe exchange. The March contract expired Friday after advancing 85 cents to $34.74. The European benchmark crude was at a premium of 70 cents to WTI for April.
OPEC’s January output includes 815,000 barrels from Indonesia, which contributed for the first time since its membership was restored Jan. 1 after a seven-year suspension, according to a Bloomberg survey. Nigeria’s production increased 109,000 barrels a day to 2.028 million, the highest in a year, while Kuwait pumped an additional 100,000 barrels a day and Iran added 60,000 barrels a day.
Manufacturing PMI in China came in at 49.4, lower than a median estimate of 49.6 in a Bloomberg survey of economists, and represents the longest stretch on record of readings under 50, the level below which indicates contraction. The nation is the world’s second-biggest oil user.
Rigs targeting oil in the U.S. fell by 12 to 498, the lowest since 2010, Baker Hughes said on its website Friday. The Permian Basin in west Texas showed the steepest decline for the second straight week, with 16 machines shut down, leaving 179 working in the nation’s most active field.
Hedge funds increased bullish bets by the most since 2010, according to data from the U.S. Commodity Futures Trading Commission. Speculators’ net-long position in WTI rose 35 percent in the week ended Jan. 26 to 110,432 contracts of futures and options.