Oil prices experienced a slight retreat on Thursday in response to the release of data showing a fifth consecutive month of contraction in China’s manufacturing activity. The dampened outlook for the world’s second-largest economy, coupled with the market’s cautious anticipation of the forthcoming U.S. personal consumption expenditure (PCE) report, contributed to the cautious sentiment among investors.
The Brent crude futures for the expiring October contract declined by 9 cents, equivalent to a 0.1% decrease, settling at $85.77 per barrel by 0630 GMT. Meanwhile, the November contract, which remains more active, saw a decrease of 10 cents, or 0.1%, to reach $85.14. In the case of U.S. West Texas Intermediate crude futures for October, a slight drop of 6 cents, or 0.1%, was observed, bringing the price to $81.57.
China’s manufacturing activity in August registered a contraction for the fifth consecutive month, according to an official factory survey published on Thursday. The official purchasing managers’ index (PMI) climbed to 49.7 from July’s 49.3, according to the National Bureau of Statistics, yet remained below the 50-point threshold signifying expansion.
In the backdrop of a more constrained U.S. oil supply forecast that bolstered prices in the previous session, concerns regarding demand have not dissipated. Market strategist Yeap Jun Rong of IG noted that conflicting factors have introduced a sense of uncertainty into prices. He emphasized the role of the upcoming U.S. core PCE release in influencing market sentiment and decision-making.
Investors are keeping a close watch on inflation indicators, particularly the U.S. personal consumption expenditures, which will be unveiled on Thursday. The PCE is a favored measure of inflation by the Federal Reserve.
Despite the current cautious environment, oil prices are poised for a weekly ascent, buoyed by tighter-than-expected crude supplies reported by U.S. government data. Furthermore, fears of crude oil supply disruptions arose from a military coup in Gabon, an OPEC member.
Analysts anticipate that Saudi Arabia will extend its voluntary oil production cut of 1 million barrels per day into October, as OPEC+ (Organization of the Petroleum Exporting Countries and allies led by Russia) efforts to curtail supply remain in effect.
Amid these developments, the U.S. government revised its gross domestic product growth for the last quarter to 2.1%, down from the previously reported 2.4%. Additionally, recent data indicated a notable slowdown in private payroll growth during August.
Former president of the Boston Fed conveyed that if the current gradual slowdown in the labor market and economic growth persists, the Federal Reserve could halt its ongoing interest rate increase cycle.
ANZ Research noted, “Bad news was good, as weaker U.S. economic data lowered expectations of another rate hike.” Higher interest rates typically dampen demand and exert downward pressure on oil prices.
