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Oil Prices Sink As New Data Shows Weak Factory Activity In China

Crude oil began trade today with a slide, following the release of weaker-than-expected factory activity data from China as well as the latest round of Covid restrictions in the country, according to Reuters.

The decline was modest, at less than 1 percent at the time of writing, after China released its manufacturing PMI reading for October, which surprised the market with a decline.

"The purchasing managers' index (PMI) data contracting adds to the post-China congress party blues for oil markets. It is not difficult to draw a straight line from weaker PMIs to China's Covid-zero policy," Reuters quoted Stephen Innes from SPI Asset Management as saying.

Meanwhile, new restrictions related to Covid also weighed on crude oil prices, as they have done for most of the year. This time, the restrictions come in response to an increase in new infections to more than 1,000 daily for more than three days.

Bloomberg, however, has noted that oil will end October with a monthly gain despite the headwinds. The report pointed out that oil supply remains quite tight globally and OPEC+ is about to start cutting more from it. This would be the first monthly gain for oil since May, Bloomberg wrote.

China is among the chief factors affecting oil prices but it is not the only one. Some analysts have pointed out that Europe will also be affecting prices in the immediate future, as a looming recession on the continent is likely to cause a drop in demand.

This would likely coincide with the entry into effect of the EU embargo on Russia crude in December and fuels in February next year—a move that will very likely add upward potential to prices. That potential, however, will be capped by the severity of Europe’s economic slowdown and the resulting demand destruction.

By Irina Slav for Oilprice.com

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