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Oil retreats despite China demand, as U.S. data goes from bad to worse

Commodities Jan 18, 2023 02:55PM ET
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By Barani Krishnan

Investing.com -- Is bad really good? It’s a question oil bulls had to reckon with as oil prices retreated from Wednesday’s highs reached on China’s bullish story as U.S. data on manufacturing to retail turned from bad to worse.

March, the most actively traded contract on New York West Texas Intermediate, or WTI, crude settled down 70 cents, or 0.9%, at $79.48 per barrel, after rising 2% earlier to an intraday high of $82.66.

London-traded Brent crude for March delivery settled down 94 cents, or 1.1%, at $84.98, after a session peak at $87.84. 

Crude gained as much as 2% earlier on Wednesday — similar to Tuesday’s rise — after the International Energy Agency said global oil demand could reach an all-time high in 2023 as China rolls back lockdowns and restrictions related to its tough COVID-zero policy.

The surge in oil prices, however, came before the Federal Reserve said U.S. industrial production fell for a second month in a row in December amid lower factory output that suggested manufacturers were slowing activity based on the softening demand for goods.

Separately, the New York division of the Fed reported on Tuesday that the NY Fed Manufacturing survey posted a -32.9 reading for December, versus a forecast of -8.6% and -11.20 for November. It was the steepest monthly slide in manufacturing since September 2021.

The drop in industrial production and manufacturing coincided with U.S. producer prices falling their most in nearly three years in December, after the sharpest tumble in a year in retail sales.

Since this week began, oil bulls, like risk investors on Wall Street, have put a positive spin on dismal U.S. data by tying them to the likelihood that the Fed will impose the smallest rate hike in eight months in February, if the numbers came in weaker than expected.  

China also reported this week dismal numbers for full-year GDP and December retail sales and industrial output

Typically, weak GDP, employment and retail sales numbers tend to weigh on oil as they are structurally-important data that support higher energy consumption when they come in on the positive side. 

Money market participants see a near 92% chance that the Fed will raise rates by just 25 basis points at the conclusion of its Feb. 1 policy meeting. Prior to that, the central bank hiked rates by 50 basis points in December, after four increases of 75 basis points from June through November.

Data late last week showing that U.S. consumer prices fell for the first time in over two-and-a-half years in December added to hopes that inflation is on a sustained downward trend that could give the Fed room to slow rate hikes.

“At some point, the oil market has to ask what’s more important for demand: The strength of the U.S. economy or the possibility of a smaller rate hike,” said John Kilduff, partner at New York energy hedge fund Again Capital.

Joseph Brusuelas, chief economist at RSM US, said in comments carried by the Wall Street Journal that the current trajectory of the economy suggested a “mild recession” at least for 2023.

Economists remain at odds with policy-makers on the probability of a U.S. recession, with the Atlanta division of the Fed forecasting a 4.1% gross domestic product, or GDP, growth for the fourth quarter of 2022 after a 3.2% expansion in the third quarter. The Conference Board, an economic analysis and forecasting group, meanwhile, expects GDP growth to slow to 0.2 percent for all of 2023.

“The manufacturing numbers have been trending down for a while and PMIs have disappointed,” economist Adam Button said in a post on the ForexLive forum, referring to the Purchasing Managers Index for manufacturing. 

“I'm not sure what the consumer will do in 2023 but manufacturing is undoubtedly in a recession,” said Button, who conceded though that a 'recession' from elevated post-pandemic production could also be regarded as “normalization”.

Market participants are also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Jan. 13. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Thursday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 593,000 barrels, versus the 18.962-million barrel rise reported during the week to Jan. 6.

On the gasoline inventory front, the consensus is for a build of 2.529M barrels to add to the 4.114M barrel build in the previous week.

With distillate stockpiles, the expectation is for a climb of 122,000 barrels versus the prior week’s deficit of 1.069M barrels.

Oil retreats despite China demand, as U.S. data goes from bad to worse
 

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Comments (9)
Jim Morrison
Jim Morrison Jan 18, 2023 6:17PM ET
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Those who can't......Teach.
Ac Tektrader
Ac Tektrader Jan 18, 2023 4:42PM ET
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these moves in crude have everything to do with precieved risks with the US markets and the european economies.... China is Boosting oil products exports. they have been importing as much as 21% of there crude from Russia, at much lower rates than what's available in the western oil markets. the net availability of crude products determine pricing for those products as well as affecting the price of crude.... in the short term at least, the price of crude will be under pressure......the dollar is the other issue and it is signaling a possible correction to the upside.
Barani Krishnan
Barani Krishnan Jan 18, 2023 4:42PM ET
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Thanks. Go tell all these to Jason xx :)
Erikke Evans
Erikke Jan 18, 2023 4:42PM ET
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uhhhh...recession fears > lack of demand > selling. Simple.
jason xx
jason xx Jan 18, 2023 4:37PM ET
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Lol dismal? Falling PPI is good it means inflation is falling like all the recent data has suggested. To many sheep and manipulators in this game
Barani Krishnan
Barani Krishnan Jan 18, 2023 4:37PM ET
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Manufacturing and retail sales tanked as well. Don't cherry pick my words.
Rubbing Hands
Rubbing Hands Jan 18, 2023 3:12PM ET
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they try to paint everything negative no matter the outcome.
Barani Krishnan
Barani Krishnan Jan 18, 2023 3:12PM ET
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That's the point isn't it? The US data is really getting so negative.
jason xx
jason xx Jan 18, 2023 3:12PM ET
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No it isn't you hack. One day everyone is peeing thier pants to buy everything they can. The next day they are panic selling because they are gullible and easily mislead by people like yourself
jason xx
jason xx Jan 18, 2023 3:12PM ET
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Inflation falling employment at record highs. GDP up what more do you want?
Ac Tektrader
Ac Tektrader Jan 18, 2023 3:12PM ET
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jason xx Jason there are technical analysts that have issued warnings that there maybe trouble just over the horizon.....and there are some troubling statistics that are starting show that something is amiss in the American economy; that they could be signaling a major slowdown in the economy coming in the last quarter the year..time will tell.
Barani Krishnan
Barani Krishnan Jan 18, 2023 3:12PM ET
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jason xx  Go look at manufacturing. It's cratering like anything. Retail sales down 2nd month in rwo and that's peak holiday shopping season time. Before you comment again, read.
Maximus Maximus
Maximus Maximus Jan 18, 2023 3:11PM ET
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so now bad is back to being bad again? china reopening not so relevant anymore? challenging market...
Erikke Evans
Erikke Jan 18, 2023 3:11PM ET
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Oil hit trendline resistance but it appears that this could be more of a prebreakout pullback.
Tom Michaels
Tom Michaels Jan 18, 2023 3:02PM ET
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decent news, poor manipulation , can't win with this manure.
Dilusha Abeygunawardana
Dilusha Abeygunawardana Jan 18, 2023 2:31PM ET
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ferney Restrepo
ferney Restrepo Jan 18, 2023 2:14PM ET
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It is funny cause that's what they wanted. Data from bad to worst. isn't that the point on hiking interest rate??
Barani Krishnan
Barani Krishnan Jan 18, 2023 2:14PM ET
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Yup, though oil bulls need to ask what's really good for crude demand: a dismal US economy or low rates?
Rff Fff
Rff Fff Jan 18, 2023 2:14PM ET
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why after data released the green went up?why still around of negative news green still afloat?Mr Barani?
Barani Krishnan
Barani Krishnan Jan 18, 2023 2:14PM ET
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Rff Fff  Just froth moving back and forth. The API later today and tomorrow's EIA will set the stage for this week's action.
Barani Krishnan
Barani Krishnan Jan 18, 2023 2:14PM ET
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API had a build of nearly 8M barrels, FYI. Let's see what EIA says tomorrow.
 
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