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Oil Holds Below $54 as China Factory Data Reignites Growth Worry

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These translations are done via Google Translate
Feb 1, 2019, by Sharon Cho and Alex Longley

Oil held below $54 a barrel in New York as weak Chinese manufacturing data and persistent uncertainty over U.S.-China trade talks stoked concerns that slowing growth could hurt demand.

West Texas Intermediate futures were steady after rising 18 percent last month. A Chinese factory purchasing managers index for January fell to the lowest level in almost three years, showing the damage the trade war is doing to Asia’s largest economy. The White House said progress had been made in talks, though didn’t detail any new commitments from either side.

Oil is stuck below $55 a barrel even as the Organization of Petroleum Exporting Countries and its allies cut production in an effort to bolster prices that sank almost 40 percent last quarter. Gains over the past month have been capped by continued uncertainty over whether the U.S. and China can tamp down their trade conflict.

“We are seeing quite a bit of disappointment creeping into the market with the failure to move higher,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “For now the market seems to be adopting a wait-and-see approach on the demand side, which has yet to be negatively impacted by the economic slowdown witnessed in recent months.”

WTI crude for March delivery slipped 3 cents to $53.76 a barrel on the New York Mercantile Exchange at 11:33 a.m. London time. It dropped 44 cents to $53.79 on Thursday.

Brent for April settlement rose 1 cent to $60.85 a barrel on the London-based ICE Futures Europe exchange, and traded at a $6.85 premium to WTI for the same month. The March contract expired Thursday after climbing 24 cents to $61.89.

Sky Eye Measurement
Sky Eye Measurement

Weakening Sentiment

The Chinese manufacturing PMI fell more than expected to 48.3 last month, the latest evidence of a slump in factory sentiment across Asia. While the U.S. Federal Reserve provided a reprieve to global markets this week by signaling a pause in interest-rate hikes, it failed to assuage investor worries about the disruption to business orders and investment plans as the trade war drags on.

The U.S. and China plan further discussions before a March 1 deadline when new tariffs kick in. “Much work remains to be done,” the White House said in a statement in which it reiterated its threat to raise levies on Chinese goods.

In Venezuela, the U.S. moved to block state oil company Petroleos de Venezuela SA and its customers from using the U.S. financial system in updated guidance on its sanctions. Any transactions with PDVSA, or any entity in which it has a controlling stake, involving U.S. persons or passing through the country’s financial system must be wound down by April 28, the Treasury said.

The sanctions could directly halt 500,000 barrels a day of Venezuelan oil exports to the U.S., Citigroup Inc. analyst Ed Morse wrote in a report. There’s a 50 percent chance that the losses could near 1 million barrels a day, he said.

Other oil-market news: Fears of undersupply are behind the recent rally in crude prices and speculative re-positioning may boost prices by a further $10 a barrel in a month or two, Citigroup said in a note on Thursday. U.S. refiners are turning away from Venezuela — literally — after the Trump administration imposed sanctions on PDVSA and the state oil company responded by demanding upfront payments for crude. India is seeking a further extension of its waiver from the U.S. on Iranian oil sanctions, allowing the South Asian nation to keep buying crude from the OPEC producer.

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