Oil Dips on Weak China Manufacturing Sector, US Stock Build

Oil prices declined on Wednesday amid a faltering China manufacturing sector and accumulation in US crude inventories.

The US West Texas Intermediate (WTI) crude oil March futures retreated 2.53% to $75.85 per barrel on January 31. However, analysts expect a 0.87% climb to $76.51 a barrel in the coming market session.

Nevertheless, the US petroleum benchmark rose 5.51% this month, its first monthly gain since September. Mounting naval conflict in the Red Sea between the US-led coalition and Iran-backed Houthi militants boosted energy prices.

Traders expressed fears of further escalation after the Pentagon vowed fierce retaliation to a deadly drone attack by Houthi forces. On Sunday, the rebels struck a US logistics support base in the Jordan-Syria border, killing three service members.

US President Joe Biden reassured he intends to decimate Houthi while avoiding a broader war in the Middle East. In response, Iranian President Ebrahim Raisi said Iran is not looking for war but is ready for it.

Meanwhile, the Energy Information Administration (EIA) reported a build in crude oil stock of 1.23 million barrels in the week ending January 26. The market anticipated a draw of 0.22 million barrels, following the 9.23 million shortfall the week before.

Lastly, the Organization of Petroleum Exporting Countries and Allies (OPEC+) will hold a monitoring meeting online on February 01.

China Manufacturing Sector Defies Oil Forecasts

On Tuesday, the International Monetary Fund (IMF) increased its 2024 oil demand growth forecast by 0.20% to 3.10%. It cited increased economic activity in the US and China, the world’s top fuel importer, as the primary driver.

China’s deteriorating manufacturing industry has economists doubting the reliability of the prediction. The China Manufacturing Purchasing Managers Index (PMI) stood at 49.20 points in January, marking the fourth straight month of contraction.

Moreover, industry experts anticipate a property sector crisis in the country after the collapse of property developer Evergrande. Creditors may barely collect any of Evergrande’s $300.00 billion debt following its court-ordered liquidation.

China imported 563.99 million metric tons (MMT) or 11.28 million barrels per day (bpd) of crude oil in 2023.