WTI and Brent crude oil costs are lower than at the start of Asia-Pacific trading, extending Monday’s decline as China’s Covid lockdowns and emerging interest rates weigh on the outlook for commodity demand. Crude oil ended 8. 86% in October despite Monday’s 2. 18% decline. That ended a four-month losing streak that pushed costs below the $80 level.
On Monday, a wonderful contraction in China’s production sector in October sent costs lower, and the purchasing managers’ index fell from 50. 1 to 49. 2, according to the National Bureau of Statistics (NBS). A reading below 50 indicates contraction. It is the latest consequence of the country’s “Zero-Covid” policy, which some hoped to mitigate after China’s National Congress.
President Xi Jinping remains committed to this policy despite its economic ramifications. This is bad news for oil prices. According to a Reuters investigation, Saudi Arabia’s Aramco could reduce its official selling price (OSP) for soft crude by between 0. 30 and 0. 40 a barrel next month. These price updates are expected to cross the threads later this week.
Meanwhile, a new wave of Covid infections in China has brought dozens of cities under control. As of Oct. 31, China has reported 2,626 new network cases. On Monday, Disney in Shanghai closed its theme park and grocery shopping areas. Macau’s government on Sunday shut down the MGM Cotai complex and ordered testing for all residents. And, in Zhengzhou, Foxconn’s iPhone factory is under a closed-circuit system and parts of the city are locked. While domestic demand is weak, refineries have higher fuel export quotas, which may only be Chinese imports.
In the United States, oil production reached a post-pandemic high of 11. 975 million barrels per day (bpd), according to the Energy Information Administration (EIA). The all-time record in November 2019 with thirteen million bpd. Although encouraging, the source is still very narrow, especially in distillate fuels, adding diesel. distillate inventories are well below their 5-year average, according to the EIA.
These figures will be updated weekly on Wednesday. Analysts expect crude oil inventories to rise to 267,000 barrels for the week ending Oct. 28, while distillate inventories are expected to fall to 733,000 barrels. The week also brings the FOMC ruling on interest rates and U. S. employment figures. Any one of which can move oil markets, given the macroeconomic implications of the data. For now, don’t expect a sharp uptick in costs amid widening lockdowns in China.
Prices failed to break through the mental point of 90 last week before falling from Monday’s point. An era of consolidation, which dug a not-so-pronounced symmetrical triangle, led to downward volatility. The average true range (ATR) is at 3. 20, the lowest since February. This, along with the triangle, suggests that costs could soon enjoy a breakout. The question is, on which side?
Chart created with TradingView
— Written by Thomas Westwater, analyst at DailyFX. com
To tap Thomas, use the comments segment below or @FxWestwater on Twitter