Oil up 2% chasing China story on eve of PMI data, U.S. inventories

(C) Reuters.

By Barani Krishnan

Investing.com — It’s China vs U.S. inventories again. And to no surprises — China wins again.

Crude prices settled up 2% Tuesday on heady bets that China will soon unveil numbers showing runaway demand for oil as the world’s largest importer of the commodity makes a clean break from COVID-19 curbs on its economy.

Tossed to the side again were forecasts for a 10th straight weekly build in U.S. crude stockpiles that would add to the 60 million barrels of additional inventories already reported for this year. To be fair, trade expectations for the latest build were just under half a million barrels on the average, though the actual reported number could be exponentially higher based on the trend of weekly adjustments made to the data by the Energy Information Administration.

New York-traded West Texas Intermediate, or WTI, crude for April delivery settled at $77.05 a barrel, up $1.37, or 1.8%.

London-traded Brent crude for April delivery settled at $83.89, up $1.44, or 1.8%.

“Oil prices remain very choppy with gains today largely offsetting losses at the start of the week,” said Craig Erlam, analyst at online trading platform OANDA. “We may have to wait for more hard-hitting economic data next week before we see the upper or lower ranges tested as the uncertainty appears to be preventing a serious move in either direction.”

Tuesday’s rally in oil was predicated on bets that factory data scheduled to be released by Beijing on Wednesday — overnight Tuesday in the U.S. — would be appropriately higher to reflect the stronger economic activity anticipated in post-COVID China.

The so-called NBS Manufacturing PMI numbers will give investors a first blush into how China’s economic reopening is faring. Forecasts so far for the January reading of the PMI is 50.5 versus December’s 50.1, just marginally higher. Separately, the Chinese Caixin Manufacturing PMI, a Chinese private sector data, is forecast to have done better with a January reading of 50.2 versus December’s 49.2. Traders are using the datasets as a proxy for oil demand.

“Should the January data prove to be a blip, it could put pressure on the upper end of the range as longer-term economic prospects improve, while another month of hot data could necessitate much higher rates and threaten a soft-landing, weighing on demand prospects,” said OANDA’s Erlam. “In the interim, choppy trading looks likely to persist.”

In oil inventories, market participants were also on the lookout for weekly data due after market settlement from the 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 Feb. 24. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile build of 0.457M barrels, versus the 7.648-M barrel rise reported during the week to Feb. 17.

On the gasoline inventory front, the consensus is for a build of 0.464M barrels over the 1.856M-barrel decline in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, the expectation is for a drop of 0.462M barrels versus the prior week’s gain of 2.698M. Distillates, which are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets, have been the strongest component of the U.S. petroleum complex in terms of demand.