China's Manufacturing PMI tumbles in April unexpectedly: crude oil markets react


China's manufacturing PMI Index April 2023

From time to time, we have been asked by experts in many different fields not to put all our eggs in one basket. Agreed and followed up to the letter. 

The investors and economists in the realm of oil and gas, however, have been deviating from the well-hackneyed, golden rule in recent months by doing just the polar opposite: they have been pinning their hopes on one key player - and its economy for that matter - that is China.

As China released its latest Manufacturing Purchasing Managers' PMI data for April two days ago, it was disappointing for the crude oil markets in particular and the global economy in general.

It has fallen from 51.9% in March to 49.2% in April, recording a significant drop. 

Since the index in question has been falling for three successive months, analysts take the trend seriously, especially at a time that everyone thought China turned around its economic activities by putting its Covid-19 saga behind.

The positive sentiment was supported by the encouraging growth of PMI for the months of January and February this year; in 2022, the figure was almost below 50%, indicating a contraction in manufacturing activities, that was fully understandable in light of Covid-10 outbreaks across China.  

Since the manufacturing PMI accurately reflects the factory activities of the word's second largest economy, there were understandable ramifications on the trading floors of the markets on Monday. 

The crude oil markets, for instance,  were rattled by the news, although the Chinese media managed not to highlight the disappointing statistics to the world straightaway, as they normally do at the end of each month.

Although China and the West are technically at an unwinnable economic war that often beyond its loosely-defined domain, the latter has not curbed the Chinese imports to the respective countries, apart from certain sensitive items, which they consider is for internal security. 

The loss of China's manufacturing activities, in this context, is more to do with global demand rather than the demand from a particular part of the world. In short, the global economy, as a whole, does not appear to be doing well at all, completely in line with the recent forecasts of reputed global institutions. 

There are reports - not officially confirmed, though - how young graduates face a bleak future in the presence of dwindling employment opportunities, especially in once-vibrant tech sector; it may not be any better in other sectors either.

The Chinese media clearly downplays the imminent impact; it appears to be trying to bury the bad news by diverting the focus on the heightened travelling activities of its population during the same period.

Since Chinse manufacturing activities has been tumbling since February -  in the absence of new outbreaks of Covid-19 - it is highly unlikely that the demand for oil in China is going to see any significant hike in the current circumstances. The palpable anxieties were reflected on Monday in the crude oil markets, once China released its PMI for April on April 30.

Oil price on Tuesday

As of 13:45 pm on Tuesday, WTI and Brent were at $75.19 and $78.85 respectively.  With the rise in the temperatures in the spring in the northern hemisphere, the price of natural gas will never reach the record heights that we witnessed in August, 2022.

It is notable that the prices of crude oil did not go up despite the three successive crude draws in the US: the investors are more interested in what is going in China rather than the US oil stocks.

In light of the latest dwindling manufacturing activities in China, analysts wonder how the OPEC+ is going to respond in the coming days; the latter has already announced a significant  production cuts for May and so far it did not generate the desired effect either. 

The members of the OPEC+ may have learned the bitter truth that the rise in crude oil price and the availability of Russian oil at rock-bottom prices are mutually exclusive. 

In this context, even if they announce yet another production cut, it is highly unlikely to achieve anything other than antagonizing the word's only Superpower, the US. In addition, such a move will move India and China further away from the Middle East producers towards Russia for their energy needs. 

Since Russia has been enriching its coffers despite the severe Western-led sanctions, what happens to all its oil will remain the elephant in the room for the foreseeable future.  



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