Chinese economic activity, a key barometer of oil demand, put some downward pressure on oil prices on Monday after data showed on Wednesday that manufacturing contracted in January for the fourth straight month.
China’s official manufacturing purchasing managers’ index (PMI) rose slightly while remaining in contraction, dampening hopes for a rebound. China’s January PMI rose to 49.2, up from 49 in December, with levels below 50 considered to be a state of contraction and analysts concluding that China remains challenged by lagging demand and consumption. The new orders subindex increased by 0.3 percentage points, month-on-month, showing only a slight improvement in demand.
“The rise in the manufacturing index was mostly driven by a rise in the output component. The overall new orders component and export orders components rose too, but by less and they remain below 50, consistent with softening demand and a decline in exports,” analysts at Capital Economics told the South China Morning Post on Wednesday.
“The factory data confirms our view that China, at least for now, is an impediment to global oil demand growth,” Tamas Varga of oil broker PVM told Reuters.
Last year saw China’s manufacturing PMI drop for five months in a row from April, with a brief respite in September before returning to contraction the following month, where it remains so far in 2024. On Wednesday, the data put minimal downward pressure on oil prices, with Brent crude and West Texas Intermediate (WTI) shedding about 1% in morning trading and geopolitical developments counterbalancing China data. In the meantime, the real estate sector, which accounts for around 25% of China’s GDP, is experiencing a major setback in the New Year, with a court ordering the liquidation of giant property developer Evergrande.
This year, Beijing is expected to see targeted growth at around 5%, according to the South China Morning Post.
By Charles Kennedy for Oilprice.com
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