Oil Drops Below $107 After Weak China PMI

Crude oil prices are under pressure as economic data slows

Crude oil prices declined in European trade Thursday as sentiment was dampened after reports indicated a sharp slowdown in the Chinese manufacturing activity in March.

Light sweet crude for May delivery declined 0.86 percent to $106.39 a barrel in electronic trading on the New York Mercantile Exchange during European trading hours. Brent crude oil futures for May delivery fell 0.42 percent to $123.67 a barrel on the ICE futures exchange in London.

Weak Chinese manufacturing data sparked concerns that demand growth could slow in the world's second-largest oil consumer. The flash China manufacturing PMI declined to 48.1 in March, the lowest in fourth months and the fifth straight month below 50, from 49.6 in February.

Our recent findings indicate that the PMI is strongly correlated with the industrial production activity 2 months later. Given the size of industry in China, this suggests GDP growth has decelerated in Q1 and may remain relatively soft in Q2, said a note from Credit Agricole Research.

China's data is not great but it is not a disaster, and funds probably took the opportunity to lock in profits, given few data left before the end of March that they could use to do so, said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory Co, Reuters reported.

On Wednesday, crude oil futures rose after weekly government data showed a surprise drop in U.S. oil inventories. The U.S. Energy Information Administration said crude stockpiles fell 1.2 million barrels in the week ended March 16, while analysts had expected an increase of 1.9 million barrels.