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China Slowdown may lead to Oil Drop

Benchmark oil prices may soften further this week if official data confirm factory activity in China slowed to its slowest pace in 11 months, implying lower demand for primary inputs from the world’s second-largest economy.

Despite correcting lower last week, both Brent and U.S. crude futures remain over $100 a barrel and many believe current prices are too high and don’t reflect weaker global fundamentals of ample supply, tepid demand and slowing emerging market growth.

“I still feel we have a $5-8 premium in the market which is too expensive,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity-markets newsletter in Sydney, who has a ‘bearish’ recommendation on the oil market this week. “I’m looking for August 1 China PMI for confirmation of the slowdown,” Barratt said, adding he is ‘short’ the market or betting prices will fall. “The market is trading with economics.”

CNBC [1]

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