China’s Economic Concerns Add To Oil Market Uncertainty

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.”

Source: https://oilprice.com/