OPEC+ expresses concern over the demand: China admits its economy suffered in August

 

China PMI in August

Although China managed to control the outbreaks of the Delta variant of the Covid-19, it could not mitigate the impact on the economy during the period from July to August.

The latest data from the National Bureau of Statistics of China, released on the eve of the latest OPEC+ meeting,  clearly shows the manufacturing activity picked up at a very slow rate in August – for the fifth month in a row.

Chinese economists blamed it on two factors: the unexpected outbreaks of the Delta variant in major Chinese cities that resulted in them being in long lockdown; the rise in raw materials, exacerbated by the increasing crude oil prices.

China uses PMI, Purchasing Manager’s Index – along with other universal measures – to gauge its economic activities, with 50-point-mark demarcating the border between the growth and contraction.

The PMI for the manufacturing sector in August was just 50.1, a drop of 0.3 points from that in July. The PMI for non-manufacturing sector, meanwhile, recorded 47.5 – below the 50-point-mark for the first time since February, 2020; according to this scale, it was a contraction, indeed.

The Delta variant broke out in the world’s second largest economy during one of its busiest period of the calendar for the non-manufacturing sector such as hotels and tourism industries – the summer.

The subdued economic activities had a direct impact on the Chinese imports of the crude oil. With less traffic on the roads, the demand plummeted, although there was no significant impact on the price at the pumps.

In order to mitigate the impact on the fragile economic recovery, China turned to SPR, Strategic Petroleum Reserves, as did many key players in the region as a last resort.

At present, the members of the Joint Technical Committee of the OPEC+, JTC, are meeting, before the scheduled meeting of the minsters on Wednesday.

They have already expressed concerns about demand for this year and the next year, while taking into account the impact of the Delta variant on the crude oil markets in major oil importing countries such as China, India, Japan and South Korea.

It certainly will be grim reading for the ministers tomorrow as well as for the investors and traders.

Since the OPEC+ is under pressure to increase the production by much more than they already agreed to, analysts are keenly awaiting the final outcome of tomorrow in light of the developments.

If there is no prospect of a sharp increase in crude oil output in the offing, there is a possibility of someone from the US administration making yet another phone call to the top echelons of the OPEC+ on Wednesday, as happened in April, 2021, substance of which usually remains shielded from the mere mortals.

 

 

 

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