Oil up as bulls chase demand ideas beyond weak China, U.S. data

By Barani Krishnan

Investing.com -- Crude futures performed unevenly Tuesday on a spate of weak data as markets reopened from a U.S. holiday, before a frenetic late push by oil bulls led to a firmly higher close.

February, the most-actively traded contract on New York West Texas Intermediate, or WTI, crude settled up 32 cents, or 0.4%, at $80.18 per barrel. The contract swung almost $3 during the session, marking one of oil’s choppier days of late, as it went from an intraday high of $81.23 to a low of $78.53 before the final move up. March WTI, meanwhile. settled up 34 cents, or 0.4%, at $80.45 a barrel.

London-traded Brent crude for March delivery settled up $1.46, or 1.7%, at $85.92, after shifting in a band of between $86.75 and $84.03. 

Oil bulls have been eager to reset their poor start for 2023, adding more than 8% to both WTI and Brent last week to erase an equivalent drop in the prior week. 

As markets opened for this week from Monday’s Martin Luther King holiday, it seemed more challenging for those long crude to keep things in the positive, as a rash of spotty economic data emerged from top oil importer China.

Beijing released dismal numbers for full-year GDP and December retail sales and industrial output on Monday. 

The New York Federal Reserve followed that up on Tuesday with a particularly weak NY Fed Manufacturing number, posting a reading of -32. 9 versus a forecast of -8.6% and a previous -11.20.

More U.S. weakness is expected in the coming days, with retail sales seen posting a 0.8% decline for December over November’s drop of 0.6% — which already marked the biggest slump in 11 months.

Typically, weak GDP, employment and retail sales numbers tend to weigh on oil as they are structurally-important data that support higher energy consumption when they come in on the positive side. 

While this week’s China data is undoubtedly bearish, oil bulls are putting a positive spin on this week’s dismal U.S. data by tying them to the likelihood that the Federal Reserve will impose the smallest rate hike in eight months if the numbers turn out to be weaker than expected. 

Money market participants see a near 92% chance that the Fed will raise rates by just 25 basis points at the conclusion of its Feb. 1 policy meeting. Prior to that, the central bank hiked rates by 50 basis points in December, after four increases of 75 basis points from June through November.

Data late last week showing that US consumer prices fell for the first time in over two-and-a-half years in December added to hopes that inflation is on a sustained downward trend that could give the Fed room to slow rate hikes.

“Crude prices continue to get a boost on China’s reopening optimism (but) the U.S. manufacturing sector is softening quickly and that might put a wrench in this current oil rally,” said Ed Moya, analyst at online trading platform OANDA. 

“The China reopening optimism induced oil rally might have a little more in it, but it should stall out soon,” added Moya. “Energy traders are probably a couple dollars away from massive technical resistance.”