China Fuels Crude Trading Woes, But Benchmarks Achieve Monthly Gains Anyway

Meanwhile, Middle East tensions are deemed unlikely to cause trading chaos: File Image/Pixabay

Conflicting economic messages emanating from China continued to influence oil's roller coaster trajectory on Wednesday, this time with prices settling lower due to a report that its manufacturing activity contracted yet again.

That, along with another surprise build in U.S. crude stockpiles, caused Brent for March to settle down $1.16 to $81.71 per barrel (the more active April contract settled down $1.89 at $80.55 per barrel).

West Texas Intermediate settled down $1.97 to $75.85 per barrel.

An official factory survey released Wednesday showed that China's manufacturing activity contracted for a fourth straight month in January.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said, "Economic momentum remained muted as the deflationary pressure persists," and he predicted that China's central bank will soon cut rates to boost demand.

Still, the analytical consensus about China remained downbeat: Tamas Varga, analyst at PVM, remarked, "China, at least for now, is an impediment to global oil demand growth."

Meanwhile, the U.S. Energy Information Administration reported that crude inventories rose by 1.2 million barrels last week compared with expectations for a 217,000 barrel draw.

But even though bearish sentiment dominates the crude trading market, WTI and Brent rose 5.86 percent and 6.06 percent respectively in January, partly due to strong U.S. growth countering disappointment over China, Beijing's vow to bolster its economy, and crude supply disruptions in the U.S. due to winter storms.

However, pundits continued to monitor geopolitical tensions with an eye toward upcoming oil trading influencers, and Natasha Kaneva, head of global commodities research at JPMorgan, told clients in a note, "The spreading conflict in the Middle East remains the most visible and growing risk for energy markets."

But Kaneva conceded that "While escalation cannot be written off, it remains unlikely in our view, as main parties in the conflict have strong incentives to avoid direct confrontation, and so far they have acted accordingly."