Oil dips on faltering Chinese economy

FE Team | Published: January 31, 2024 22:34:26

LONDON, Jan 31 (Reuters): Oil prices fell on Wednesday, pressured by lacklustre economic activity in leading crude importer China, but a first monthly gain since September remained in sight as flaring tensions in the Middle East heightened supply concerns.
Brent crude futures for March, which expire today, fell 83 cents, or about 1per cent, to $82.04 a barrel by 1336 GMT. The more actively traded April contract was down 85 cents, or about 1per cent, at $81.65.
US West Texas Intermediate crude futures lost 95 cents, or roughly 1.2per cent, to $76.87.
Manufacturing activity in China, the world's second-largest economy, contracted a fourth straight month in January, an official factory survey showed on Wednesday.
The latest sign of the country's broader economy struggling to regain momentum came days after a court ordered the liquidation of troubled property developer China Evergrande. The real estate sector accounts for a quarter of China's GDP.
Major forecasters, including the Organization of the Petroleum Exporting Countries (OPEC), see oil demand growth in 2024 driven primarily by Chinese consumption. "The factory data confirms our view that China, at least for now, is an impediment to global oil demand growth," said Tamas Varga of oil broker PVM.
In other demand-dampening news, US policymakers are expected to keep interest rates unchanged this week. Economist predictions suggest that a cut is unlikely before June, given continuing strength in household spending and uncertainty over the economic outlook.
The Israel-Hamas war, meanwhile, has expanded to a naval conflict in the Red Sea between the United States and Iran-aligned Houthi militants.
While that has disrupted oil and natural gas tanker shipping, which is driving up delivery costs and starting to affect oil supplies, a Reuters poll suggested that record production in the West and slow economic growth will keep a lid on prices and limit any geopolitical risk premium.
"The main issue with turning outright bullish on crude oil here is the technical picture remains bearish and is yet to catch up with recent events," including a deadly drone attack on US troops near the Jordan-Syria border last week, said IG market analyst Tony Sycamore.