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Oil slips after China orders industrial capacity cuts

27 july 2013, 12:59
World oil prices slipped on Friday after China ordered industrial production capacity cuts in the face of slowing economic growth, AFP reports.

The government action added to market concerns about weakening demand in China, the world's second-largest economy.

New York's main contract, West Texas Intermediate (WTI) for September, finished the trading session at $104.70 a barrel, down 79 cents from Thursday's close.

The European benchmark contract, Brent North Sea crude for delivery in September, fell 48 cents to $107.17 a barrel in London trade.

"The news out of China that they are forcing a cut in excess industrial capacity is a very bearish factor for crude oil," said John Kilduff of Again Capital.

China ordered companies in 19 industries, including steel and cement, to cut excess production capacity.

Beijing's industry ministry instructed about 1,300 firms to shut down outdated facilities by September and eliminate excess capacity by year-end, Chinese state media said Friday.

The government's action, analysts said, could hit already weak manufacturing activity, which contracted to an 11-month low in July, according to HSBC figures.

China is the number-two oil consumption country but is number one in terms of the oil market's outlook, Kilduff noted.

"The way Saudi Arabia is a swing producer, China is a swing demand center," he added.

Carl Larry of Oil Outlooks and Opinion said the trading session had been "very quiet" and prices had not fallen further "because we are still facing some tensions in the Middle East."

Barclays analyst Sijin Cheng pointed to signs of weakening Chinese oil demand.

"Underlying demand growth could stay muted during the summer, when a seasonal slowdown in manufacturing and hence diesel demand is partially offset by strong gasoline and jet fuel demand in Q3, due to summer driving and air travel," he said.

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