Forget China's growth, for now -- the U.S. might be a bigger problem as New York manufacturing data showed on Friday, stopping short this week's rally in oil.
Both U.S. West Texas Intermediate crude and U.K. Brent oil fell after the Empire State manufacturing index slumped to a reading of 3.70 for March, its third consecutive monthly reading below 10 and the lowest since May 2017.
The unexpected drop in manufacturing activity in the New York area, the bellwether of the dynamic U.S. East Coast, rippled across markets as it was another sign that the world's largest economy might be weakening as the effects of President Donald Trump's 2017 tax cuts fade. Worries about Washington's prolonged trade dispute with China and how that is impacting U.S. growth also spooked investors.
Traders and investors are on the lookout now for the weekly reading on the U.S. oil rig count due at 1:00 PM ET (17:00 GMT) to see if local energy companies had added to drilling activity this week. The rig count, published by oil services firm Baker Hughes, hit 10-month lows last week, bolstering the rally in WTI as the market feared a deficit in U.S. crude supply as well at a time of massive production cuts by OPEC.
Goldman Sachs (NYSE:GS), one of the most influential voices in oil market forecasting, meanwhile, said it expected Brent to hit the highly-anticipated $70 per barrel mark in due course. The Paris-based International Energy Agency said in its monthly report that the modest global oil surplus in the first quarter could flip into a deficit of about 500,000 barrels a day by the second quarter.
The forecasts helped put a floor under Friday's market.
By 12:18 PM ET (16:18 GMT), WTI was down 17 cents, or 0.3%, at $58.44 per barrel, after hitting a new 2019 high of $58.95 earlier. Despite the slide, the U.S. crude benchmark was still on course to record a weekly gain of about 4.2%.
Brent, which had broken away from WTI's four-day rally on Thursday, fell for a second straight session, sliding 38 cents, or 0.6%, to $66.85. The U.K. crude benchmark remained on track to deliver a 1.7% gain on the week.
WTI's outperformance against Brent and the narrowing gap between the two has become one of the biggest plays in the oil market this week. Until last week, Brent had steadily retained a premium of $10 a barrel or so against its U.S. peer.
But in recent days, the difference had dwindled to below $8.50 after the U.S. Energy Information Administration shocked the market by announcing a crude stockpile drop of nearly 4 million barrels last week versus an expected build of 2.7 million. Inventories at the Cushing, Okla., storage hub for WTI also fell last week by 5.4 million barrels, the EIA said.
"A lack of builds recently has created optics that have the Cushing bears on the run for the time being and generating a WTI/Brent rally that can do whatever it wants as the U.S. grade will adjust to make WTI/Brent 'just a number'," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.
Notwithstanding Friday's slide, WTI remains up 29% on the year and Brent 24%, underpinned by aggressive OPEC production cuts.