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Better China data lifts Crude Oil demand outlook


TickMill Market Analyst, James Harte takes a look at Crude Oil for us:

Crude Oil prices have been a little firmer this week on the back of better data out of China.

The latest China manufacturing PMI came in well above expectations, marking a return to growth for the sector for the first time since the pandemic began as well as the biggest monthly increase in over a decade.

With the Chinese recovery starting to gather pace on the back of the country reopening its borders earlier this year, the demand outlook for oil is improving considerably.

This is certainly helping drive bullish sentiment.

Russia to cut Crude Oil output further

Oil prices were also helped by news that Russia is to further cut exports in retaliation to western sanctions.

News desks reported on leaked plans to cut output by a further 25%, surpassing the nation’s previous announcement that it would slash output by 500k barrels per day as of this month.

Weaker US demand

However, despite better demand in China, weaker demand in the US is having an offsetting impact.

Furthermore, a stronger US Dollar and higher global yields is also weighing on demand for oil, keeping prices hemmed in within the current range.

Additionally, the industrial picture in the US is not as strong as hoped. The latest ISM manufacturing PMI received this week showed a fourth monthly decline, painting a worry picture of factory activity in the US.

Fresh EIA inventories build

The latest report from the Energy Information Administration this week revealed a further build in US commercial crude oil stores.

Inventories rose by 1.2 million barrels last week. Though slightly under the 1.7 million barrel surplus the market was looking for, the data marks the latest in a string of inventories increases which reflect the weaker demand backdrop in the US currently.

Looking ahead, while the demand environment remains weak and with USD stronger, Crude Oil is likely to remain within range with only a shift in this narrative likely to provide a topside move.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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