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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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China’s Economic Concerns Add To Oil Market Uncertainty

  • the private Caixin purchasing managers’ index has confirmed that China’s factory activity dipped in April, the first contraction since the start of the year.
  • While the data does not mean that China’s growth is stalling, the country’s recovery appears to be less smooth than many observers had hoped.
  • Combined with the latest interest rate hike from the Fed, demand concerns in China helped to drag oil prices significantly lower this week.
demand

China's factory activity dipped in April, the private Caixin purchasing managers' index has confirmed.

According to Caixin, factory activity fell to 49.5 from 50 in March, Bloomberg reported, meaning activity contracted for the first time since the start of the year.

The data confirmed official figures released earlier this month, which pointed to a sharper monthly contraction in manufacturing activity: to 49.2 from 51.9 in March, Reuters reported.

The official data served a blow because it was very different from what analysts had expected, which was an expansion of 51.4, per a Reuters poll of economists.

Oil prices, already pressured by jitters about the U.S. economy, fell further and will likely fall further still after the news of the latest Caixin PMI reading.

This does not mean that China's growth is stalling. It is just uneven and reflects a complicated global economic situation. The service sector, for example, seems to be thriving, as is travel and leisure.

Manufacturing, however, is lagging behind these, not least because of subdued growth elsewhere in the world, which is bound to affect one of the world's biggest exporters.

Meanwhile, oil prices extended their losses this week after the Federal Reserve announced another rate hike, albeit smaller than previous ones, at 25 basis points.

Some argued that the rate hike has been factored into prices already but judging by the latest moves in those prices, it has not been factored in, or at least not fully.

On the flip side, the Fed gave signals that it may now take a break from rate hikes, which should have a positive effect on prices—at least until it's time for the next PMI reading for China.

"The Fed going into a pause mode should be very supportive for the price of oil," Phil Flynn, an analyst at Price Futures Group, told Reuters this week. "The big question is whether or not we're going to have more shoes drop in the banking sector."

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  • Mamdouh Salameh on May 04 2023 said:
    Such claims are plain nonsense.

    1- How could there be economic concerns about a country projected to grow this year at 5.2%-6.5% according to the IMF, the highest growth rate in the world with the prospect of even exceeding these rates?

    2- How could there be any worries about oil demand from a country that broke oil import records in March this year when its imports hit 2.3 million barrels a day (mbd)?

    3- How could there be any question marks about China’s robust support of global demand when 125 oil supertankers are on their way to China to deliver an estimated 250 million barrels in May?

    Such claims seem to be concerted efforts by Western media to pin some blame on China for the plunging oil prices when the full blame should be solely pinned on a lax US banking system leading to a recent collapse of three US commercial banks and triggering fears of a global banking or financial crisis reminiscent of the 2008 subprime financial and banking crisis.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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