Brent slips towards $107 on concerns of weakness in China economy

By Jessica Jaganathan

SINGAPORE (Reuters) - Brent crude slipped towards $107 on Wednesday on concerns about weakness in the recovery of China, the world's second biggest oil consumer, while U.S. crude turned higher after data showed a bigger-than-expected fall in crude oil stocks.

China's imports of crude oil imports for June were down 7.4 percent from the previous month, according to customs data, while trade data also pointed to a downward trend, adding to signs of an economic slowdown.

But U.S. oil prices remained supported as data from industry group the American Petroleum Institute showed that crude inventories fell by nearly 9 million barrels in the week, compared with analysts' expectations for a decline of 3.3 million barrels.

"China was the big focus for a while but now it seems the U.S. is the main driver for both bullish and bearish views," said Tony Nunan, risk manager at Mitsubishi Corp.

The United States was now the main driver of oil being the largest growing supply source with a boom in shale oil, said Nunan.

"Suddenly, it seems investors have caught on to (U.S. oil) as the investment of choice," he said.

Brent crude futures slipped 2 cents to $107.79 a barrel by 0322 GMT, slipping from a session high of $108.12 after the bearish China data.

U.S. crude oil gained 82 cents to $104.35 a barrel, after earlier hitting a fresh 14-month high of $104.79.

The spread between global benchmark Brent crude oil and U.S. benchmark West Texas Intermediate narrowed by 89 cents to $3.41 by 0255 GMT.

"WTI was a lot less attractive before being in contango versus Brent being in backwardation, and was out of favour as an investment compared with Brent, but now investors are coming back in," Nunan added.

The U.S. dollar hovered near a three-year high against a basket of major currencies, creating headwinds for oil prices, while a good start to the U.S. earnings season underpinned equities will support crude oil prices.

Commodities priced in dollars become more expensive for holders of other currencies as the dollar strengthens, weakening demand.

"There is also some short covering happening in the oil markets as the trend is clearly heading to the upside, so those with short positions should buy back," said Tetsu Emori, a commodities fund manager at Astmax Investments in Tokyo. referring to the U.S. crude oil stocks drawdown.

ECONOMIC OUTLOOK

The International Monetary Fund trimmed its global growth forecast on Tuesday for the fifth time since early last year, due to a slowdown in emerging economies and recession-struck Europe, which also put a lid on oil prices.

But supporting U.S. oil prices, the U.S. Energy Information Administration slightly tightened its outlook for oil markets in 2014, but left the balance for 2013 unchanged, according to a report released on Tuesday.

Geopolitical risks also remained, as investors continued to watch the developing situation in Egypt.

Egypt's interim authorities, boosted by $8 billion in Gulf aid, start work on forming a cabinet on Wednesday, a week after the elected Islamist president was ousted by the army leading to a wave of violence in which at least 90 people were killed.

Source: http://news.yahoo.com/brent-slips-towards-107-concerns-weakness-china-economy-072108056.html

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