Tuesday, February 4, 2014
Weaker Chinese economic growth could negatively impact Crude Oil demand and put bearish pressure on prices. The Chinese Purchasing Managers' Index fell to 51 in January, which was in line with estimates, but down from December. After digging deeper into the report, the number could be viewed as troubling. Manufacturing continues to slump, which could have a negative impact on raw material purchases. Also, the weaker data could be taken as a sign that the Chinese government's crackdown on shadow banking could be working. In order to cut down on non-transparent transactions, the Chinese government is putting pressure on their economy.
China is not the only country facing a manufacturing slowdown. The ISM released its manufacturing data, which showed much weaker factory activity. The ISM Index came in at 51.3, down from 56.5 in December, and missed the consensus estimate of 56.0. Manufacturing is slowing at a time of year when refinery utilization is already slow. In the past 10 years, refinery use declined in the first quarter of the year. This could lead to another supply build in the US, barring a supply disruption or unexpected increase in demand. This Wednesday's EIA report is expected to show Crude Oil inventories rising 2 million barrels. Equity markets may continue to weigh on Oil prices. The S&P shed 40 points during yesterday's trading session.
Turning to the chart, we see the March Crude Oil contract unable to mount a successful attempt to break through minor resistance near the 98.80 level. The Crude Oil market is currently technically overbought, which may have contributed to the selling pressure. Prices also failed to break through the 100-day moving average.
Rob Kurzatkowski, Senior Commodity Analyst