Oil ends down almost 1% after drifting aimlessly on China hopes

By Barani Krishnan

Investing.com -- Oil settled down almost 1% Monday after moving aimlessly much of the day as longs defended crude prices at their lows even as short-sellers pecked away at a market into its fourth week of wait for positive data out of top importer China.

News that Russia halted exports to Poland via a key pipeline lent some support earlier in the session.

New York-traded West Texas Intermediate, or WTI, crude for April delivery settled at $75.68 a barrel, down 64 cents or 0.8%. The U.S. oil benchmark finished last week almost flat at $76.32 on bets over impending Chinese demand despite humongous builds over nine straight weeks in crude stockpiles in the United States. 

Brent crude for April delivery was at $82.09 per barrel by 14:30 ET (19:30 GMT), down 73 cents, or 0.9%. The global oil benchmark also finished last week flat in pursuit of the notion that China would mount one of the most aggressive buying campaigns for crude with the end to COVID controls in the country.

“Oil prices are drifting lower again as we continue to see choppy trading conditions,” said Craig Erlam, analyst at online trading platform OANDA. “We've seen consolidation in oil prices for many weeks now but it is happening at a glacial pace and there's little reason to expect that's going to change in the immediate future.” 

“One upside risk could be an improvement in the economic data that points to cooling in all the right places, while any indication that China's adjustment is experiencing difficulties could be a downside risk. That aside, choppy with ultimately sideways trade could be on the cards a little longer.”

Many believe China will import a record amount of oil in 2023 as it tries to make a clean break for its economy from three years of underachievements caused by the coronavirus. 

There are various subplots unfolding as to how that demand might be coming together. Unipec, the largest oil trader in China and the trading unit of state-held refiner Sinopec (OTC:SHIIY), and PetroChina (OTC:PCCYF), the largest oil and gas producer and distributor in China, have both hired ten supertankers capable of loading 2 million barrels each to haul U.S. crude back to Asia from March, Bloomberg reported last week, citing people with direct knowledge of the matter. 

Notwithstanding these, the market still needs to see hard data on Chinese buying. Until that comes, crude prices could remain locked in a range.

Wednesday’s NBS Manufacturing PMI numbers will give investors a first blush into how China’s economic reopening is faring. Initial indications are that the reading could be mixed. Some analysts say they expect a rebound in consumer activity. Others forecast flat trends to allow at least another month to pass after the late January-to-early-February Lunar New Year celebration.

There was no consensus yet on what the PMI numbers could be.

But some whisper numbers suggest the data could move back into contraction territory, with a reading of 49.8 in February from January’s 50.1. There are no expectations currently for the Services and Composite metrics - which last month printed at 54.4 and 52.9 respectively. 

While mobility data from road travel and public transportation showed that economic activity in major cities in China is increasing, the consumption picture on the industrial side was slow at best, Investing.com energy analyst Ellen Wald said in an article last week. She adds:

“More people were on the roads in major cities last week since the start of 2023, and more people have used the subway in these cities since before the pandemic. Restaurant dining, entertainment, and shopping also increased, indicating China is finally returning to pre-pandemic travel and commerce patterns. This seems to indicate a return to pre-pandemic levels of consumer demand for gasoline and diesel soon.”

But industrial activity was still lagging, Wald said. 

“Chinese consumer data indicates that purchases of big-ticket items like cars and homes are not rebounding and are continuing to decline. As a result, demand for industrial materials, such as steel and cement, remains depressed.”

“China’s industrial activity should pick up, but the data seem to indicate that this will take longer than consumer activity. Traders should, therefore, not expect to see oil demand in the industrial sector returning to pre-pandemic levels as quickly as consumer demand.”

On the U.S. data front, pending home sales posted their largest gain in 2-1/2 years in January, suggesting more spending from Americans that could prompt the Federal Reserve to respond with more hawkish monetary policy.