Forexpros – Crude oil futures came off the highest levels of the session during European morning trade on Tuesday, after a gauge of manufacturing activity in Germany fell to a 37-month low, renewing concerns over the impact of the euro zone’s sovereign debt crisis on the region’s largest economy.
Prices remained supported following data showing an improvement in China’s manufacturing sector.
On the New York Mercantile Exchange, light sweet crude futures for delivery in September traded at USD88.58 a barrel during European morning trade, adding 0.5%.
Earlier in the day, prices rose by as much as 0.9% to trade at a session high of USD88.96 a barrel.
Oil’s prices came off the highest levels of the session after data from market research group Markit showed that its preliminary German manufacturing purchasing managers’ index fell to 43.3 in July from a final reading of 45.0 in June.
Oil traders often use manufacturing numbers as indicators for future fuel demand growth.
Markets remained jittery after ratings agency Moody’s revised its outlooks on the sovereign ratings of Germany, the Netherlands and Luxembourg to negative from stable after the U.S. market close Monday. Moody’s rates all three at AAA.
The ratings agency cited the possibility of Greece’s exit from the euro zone and the impact that would have on Spain and Italy.
Market players were also looking forward to a Spanish government debt auction later in the day, amid growing fears the country will be the next euro zone member to require a bailout.
The euro zone’s fourth largest economy was due to auction between EUR2-3 billion of three- and six-month government debt later in the day.
The yield on Spanish 10-year bonds stood at 7.42% during early trade Tuesday, after hitting a euro-lifetime high of 7.57% in the previous session, well above the 7% threshold widely considered unsustainable in the long term.
Oil traders pay close attention to developments surrounding the euro zone’s debt woes, amid worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.
Investor sentiment found mild support following a report showing that China’s HSBC purchasing managers index improved to 49.5 in July, its highest level since February, from a final reading of 48.2 in June.
While the index remained below the 50 level which indicates contraction, the improvement from the previous month eased concerns over a slowdown in the world’s second largest economy.
China is the world’s second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for September delivery rose 0.6% to trade at USD103.89 a barrel, with the spread between the Brent and crude contracts standing at USD15.31.
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