Oil Price Fundamental Daily Forecast – Prices Jump Following China’s Stunning Factory Activity Growth

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday for second session after a strong jump in manufacturing in China, the world’s biggest crude oil importer, heightened the outlook for global fuel demand.

At 06:30 GMT, April WTI crude oil futures are trading $77.55, up $0.50 or +0.65% and May Brent crude oil futures are at $83.97, up $0.52 or +0.62%. On Tuesday, the United States Oil Fund ETF (USO) settled at $67.22, up $0.97 or +1.46%.

Supported by Expectations of Strong China Demand Rebound

The catalyst driving oil prices higher on Wednesday is an upside surprise in China’s PMI data. The news furthered the conviction of a stronger-than-expected recovery and may have softened the blow to demand from hawkish central banks.

Data showed China’s factory activity rose for the first time in seven months in February, according to the purchasing manager’s index (PMI) published by Caixin/S&P Global on Wednesday, according to Reuters.

China’s Factory Activity Stuns with Fastest Growth in a Decade

China’s manufacturing activity expanded at the fastest pace in more than a decade in February, an official index showed on Wednesday, smashing expectations as production zoomed after the lifting of COVID-19 restrictions late last year, Reuters reported.

The manufacturing purchasing managers’ index (PMI) shot up to 52.6 from 50.1 in January, according to China’s National Bureau of Statistics, above the 50-point mark that separates expansion and contraction in activity. The PMI far exceeded an analyst forecast of 50.5 and was the highest reading since April 2012.

Gains Limited by Signs of Rising US Crude Stockpiles

The strong demand signal was offset by signs of rising crude stockpiles in the United States, the world’s biggest oil consumer and producer.

Crude oil inventories in the United States saw another significant increase, with a 6.203 million barrel increase this week, the American Petroleum Institute (API) data showed on Tuesday, bringing the total number of barrels gained so far this year to nearly 59 million barrels.

Gasoline inventories fell by 1.774 million barrels after last week’s API data showed the fuel inventories rising by 894,000 barrels. Distillates fell 341,000 barrels after rising by 1.374 million bpd in the week prior.

Inventories at Cushing, Oklahoma increased by 483,000 barrels on top of the 781,000 barrel hike reported last week.

Short-Term Outlook

Official U.S. government data on stockpiles is due later on Wednesday. Analysts predict U.S. crude inventories rose by 1.7 million barrels the week-ending Feb. 24.

Also on tap is the U.S. ISM Manufacturing PMI report. This report could influence the Fed’s next interest rate decisions. Bullish numbers will increase the odds of another strong rate hike in March. This could put downside pressure on crude oil prices.

The data out of China provided a nice catalyst for the crude oil rally on Wednesday. However, keep in mind how low the numbers were during the COVID restriction period. We were expecting a quick recovery, but were also looking for the gains to taper off in the near future.