Oil slips on demand worry, dollar fall supports

LONDON, June 1 (Reuters) – Oil fell on Wednesday, as negative economic data clouded the demand outlook, although losses were contained by dollar weakness, supply disruption in the United States and violence in the Middle East.

The ADP national employment report showed that payrolls added just 38,000 jobs in May and were the lowest since September 2010, disappointing investors and shining a spotlight on the lacklustre U.S. economy and prospects for demand there.

This followed data that showed European manufacturing growth slipped sharply and Chinese factories expanded in May at their slowest pace in at least nine months.

By 1228 GMT U.S. crude fell 29 cents to reach $102.41 a barrel, having reached a three-week high reached the previous session.

Brent crude traded down 42 cents at $116.31 a barrel. The sell-off in commodities earlier in May led to Brent posting a 7.3 percent loss for the month, its biggest monthly percentage loss in a year.

On Tuesday, U.S. consumer confidence slid in May as consumers turned more pessimistic on the outlook for the labor market and inflation worries rose, according to a private sector report released on Tuesday.

“There’s general newsflow that’s negative, the data indicates that there’s a soft spot in industrial growth and this should pressure commodity prices,” said Steven Bell, director at hedge fund GLC.

 

DOLLAR, DISRUPTION SUPPORT

Oil’s price falls were muted as weaker dollar pressured commodity prices.

Optimism that a deal would be done to deliver Greece a fresh aid package lifted the euro to a four-week high against the dollar. The dollar also retreated on the U.S. ADP data.

A weaker dollar makes oil cheaper for those holding other currencies.

“If euro/dollar closes above a 50-day moving average it will lead to a bullish trend for the euro from here and there could be more positive momentum for oil,” Thorbjorn Bak Jensen, oil market analyst at A/S Global Risk in Copenhagen said.

Also supporting crude prices, pipeline disruptions to U.S. supply have hit the world’s largest oil consumer just as it enters the summer driving season.

TransCanada Corp said it will take several days to re-open its 591,000 barrel per day (bpd) Keystone oil pipeline to the Cushing, Oklahoma, oil hub after the second spill in less than a month forced it to shut at the weekend.

Enbridge Inc restored power on Wednesday to three pumping stations on a 290,000 bpd pipeline that had lost electricity supply after severe storms.

Tension in the Middle East also supported oil as investors worried about possible supply disruption.

Street fighting raged in Yemen’s capital on Tuesday ending a tenuous ceasefire between tribal groups and forces loyal to President Ali Abdullah Saleh and edging the impoverished Arab state closer to civil war.

Flashpoints in Yemen have multiplied this week with fighting in the capital, government troops gunning down protesters in Taiz in the south and a battle with al Qaeda and Islamic militants in the coastal city of Zinjibar. Yemen is a small independent producer but the concern for oil markets is of chaos creating a haven for al Qaeda militants, spreading to neighbour and the world’s biggest oil exporter Saudi Arabia.

Next week investors’ attention will turn to an OPEC meeting to see whether any changes to production are on the cards from major oil producers, though a Reuters survey found that no change was likely.