WTI futures advance on upbeat China manufacturing data, OPEC supply outages

West Texas Intermediate crude gained for a second day and Brent remained over the $110 mark after a government report showed on Sunday that Chinas factory growth remained at an 18-month high, while a private survey released on Monday posted the second-highest reading in eight months, curbing speculations for a slowdown in the worlds second biggest consumer. Continuing supply disruptions from Libya, the holder of Africas biggest crude reserves, led to a reduction in OPECs output in November, further supporting prices. The group is expected to leave its 30 million bpd target unchanged at its December 4 meeting in Vienna amid supply outages in Libya and Nigeria and a reduction in Saudi Arabian output, a Bloomberg survey showed.

On the New York Mercantile Exchange, WTI crude for delivery in January rose by 0.47% to $93.16 per barrel by 8:20 GMT. Futures varied in a days range between $92.65 and session high of $93.30. The U.S. benchmark settled 2.2% lower last week and fell 3.7% in November, a third straight monthly decline and longest losing streak since January 2009.

Meanwhile on the ICE, Brent futures for settlement in January traded at $110.07 per barrel at 8:17 GMT, up 0.35% on the day. Prices ranged between days high and low of $110.37 and $109.64 per barrel respectively. The European benchmark fell on Friday and settled the week 0.5% lower but rose by 1% in November, supported by supply outages from some OPEC members. Brent’s discount to its U.S. counterpart rose to $19.01 a barrel on November 27, the widest in eight months based on closing prices.

The oil market drew support on Monday after better-than-expected manufacturing data from China, the worlds second biggest consumer, defied analysts projections for a modest slowdown while the government undertakes tough reforms in order to shift growth from investment-dependent to consumer-based.

China’s National Bureau of Statistics reported on Sunday that the nation’s Purchasing Managers’ Index was unchanged at 51.4 in November from a month earlier, which was an 18-month high, defying analysts’ projections for a decline to 51.1.

The better-than-expected reading was largely based on firm domestic and foreign demand. A gauge of output rose to 54.5 from 54.4 in October, while new export orders jumped to 50.6 from 50.4. An index measuring employment gained for a second month to 49.6, the strongest reading since March.

China’s government has set a 7.5% growth target for this year, coinciding with the results of a Reuters’ poll of analysts for expansion in the fourth quarter. A survey conducted by Bloomberg News showed economists expected the Chinese economy to expand by 7.6% this year but growth will slow to 7.5% in 2014. Premier Li Keqiang said that Beijing needs an annual expansion of 7.2% to keep unemployment stable.

A separate private survey also showed better-than-expected manufacturing activity, confirming the government statistics. The Chinese HSBC Manufacturing PMI jumped to 50.8 in November from 50.4 in October, the second highest reading in eight months, beating analysts predictions for a minor advance to 50.5.

Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg: “What we’ve seen over the past few months is a clear steadying of the growth outlook in China. The idea of a hard landing, which was damping energy demand, has now all but dissipated.”

The report, prepared by HSBC and Markit Economics, signaled a further improvement of operating conditions, although marginal. Output and total new orders increased at the fastest rates in eight months, the survey revealed, but renewed job cuts led to a solid increase in outstanding businesses, offsetting last months slight expansion in payrolls. However, the job shedding was only marginal with some panellists citing down-sizing policies and the non-replacement of voluntary leavers.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “China’s manufacturing sector kept relatively steady growth momentum in November, as the final manufacturing PMI was revised up from the flash reading on the back of faster new business gains. However, the renewed contraction of employment and the slower pace of restocking activities call for a continuation of accommodative policy. The modest inflationary pressures leave room to do so.”

OPEC supply outages

Oil prices also drew support as production in OPEC, which accounts for 40% of global output, fell in November amid supply disruptions in Libya and Nigeria and a further reduction in Saudi Arabian output. A Reuters survey showed the group pumped less than 30 million bpd in November for a second month.

According to Reuters, protests at Libyan oilfields curbed the African countrys production to 350 000 bpd in November, while it further fell to 250 000 bpd at the end of the month. The nation pumped an average of 450 000 barrels of oil per day in October, down from 1.45 million bpd a year earlier.

Libya’s Prime Minister Ali Zeidan said last week the government may not be able to pay civil servants’ salaries and may have to seek loans if militias continue to block oilfields and export terminals, crippling the nation’s production and exports, its main source if revenues.

OPEC members are scheduled to meet in Vienna on December 4 to assess their production target but analysts expected no change to be voted.

Thina Margrethe Saltvedt, senior macro oil analyst at Nordea Markets in Oslo, said for CNBC: “Libya and Nigeria have big problems keeping up production which is one reason why OPEC has been producing below its set quota. This weeks OPEC meeting will be a non-event since the group has been producing around its current target of 30 million barrels-a-day, thus I dont see any reason of changing it in the short term.”

However, if prices were to fall too much, as in Brent plunges to around $85 per barrel, the group may reduce its output in order to defend prices of around $100 as many exporters target that level to support their budgets.

Market players also awaited the release of key U.S. economic data later in the week to gauge demand prospects in the worlds top consumer and also assess further whether the Federal Reserve might trim its quantitative easing program earlier than expected. Investors will also be keeping a close watch on manufacturing PMI numbers from the Euro zone and the U.K., due to be released later today.