Oil hovers above $74 after Chinese data

| Wednesday June 2, 2010 00:00

Although China's factories scaled back production last month and slowed the pace of hiring in response to a drop in new orders from both home and abroad, the purchasing managers' index (PMI) reading for May still held above the threshold that demarcates expansion from contraction.

Euro zone economic sentiment unexpectedly fell last month, data showed on Monday, an indication that the region's debt crisis has begun affecting the real economy.

US crude for July delivery was at $74,31 a barrel, up 34 cents from Friday's close. There was no settlement price on Monday because of the Memorial Day holiday in the United States. The New York Mercantile Exchange will combine Monday's and Tuesday's (Yesterday)trading sessions into one.

ICE Brent crude for July slid 11 cents to $74,54 from Monday's settlement after touching $68,15 a week ago, the lowest intraday price for a front-month contract since February 5.

'I don't think prices will fall further,' said Serene Lim, a Singapore-based oil analyst at ANZ.

'Looking at the supply-demand balance, it seems to be tightening, considering that emerging markets such as China are reporting relatively strong economic numbers.'

China's PMI, an indicator of factory activity, compiled by the China Federation of Logistics and Purchasing fell to 53,9 in May from 55,7 in April, but stood above the threshold of 50 that demarcates expansion from contraction for the 15th consecutive month.

'We will see tightening balances in the second half of the year,' Lim said, adding that currently, Asian demand was also being driven by the spring agricultural season, when diesel use increases.

US crude posted its biggest monthly loss since 2008 in May after the European economic crisis raised the prospect of reduced fuel demand.

The euro slipped yesterday, showing its continued vulnerability to a broader sell-off on fears that the region's sovereign debt problems could spread to the banking system. Asian stocks also fell.-(Reuters)