Oil at highest point since 2019
Oil has continued its recent resurgence despite a recent weak performance of the Chinese manufacturing sector.
West Texas Intermediate (WTI) began February at $53.55 per barrel and finished the month $61.50, up early 15%. Brent crude oil started February at $56.35 per barrel and was valued $66.13 heading into March, an increase of over 17%.
It was oil’s highest point since 2019, well before worldwide lockdowns came into effect.
This is despite a slowdown in manufacturing growth in China.
The headline seasonally adjusted Purchasing Managers’ Index (PMI), an indicator of manufacturing conditions in the Chinese economy, fell from 51.5 in January to 50.9, a nine-month low.
If the PMI figure is above 50 then output has increased for that month. Therefore, while output is still rising, it is going up minimally. PMI has also risen at a slower rate for the third month in a row.
Many companies commented on the ongoing negative impact of the pandemic on demand and business operations during the last survey period.
Analysing the China General Manufacturing PMI data, Dr. Wang Zhe, senior economist at Caixin Insight Group said:
“The Caixin China General Manufacturing PMI fell to 50.9 in February and stayed in positive territory for 10 straight months, indicating that the economic recovery in the manufacturing sector continued. But the effect of the recovery further weakened as the reading declined for a third straight month, falling to the lowest since May,” Zhe said.
Russ Mould, investment director at AJ Bell, is looking forward to Thursday as he predicts the commodity’s recent bullish run could be tested.
“Its price faces a big test on Thursday when oil producers’ cartel OPEC+ holds its next meeting. The market will be watching closely to see if an increase in supply is agreed at the meeting as a large hike could cap any further gains with Brent Crude in the near-term,” said Mould.
Oil’s price has benefitted from a number of favourable macroeconomic factors in recent weeks in addition to China’s recovery, including the Texas freeze, Joe Biden’s pending stimulus package and the retreat of Covid-19.