By Adedapo Adesanya
Oil prices settled lower on Wednesday, pressured by low economic activity in leading crude importer, China, and a surprise build in US crude inventories, with Brent shedding $1.16 or 1.4 per cent to trade at $81.71 a barrel and the US West Texas Intermediate (WTI) falling by $1.97 or roughly 2.5 per cent to quote at $75.85 per barrel.
Manufacturing activity in China, the world’s second-largest economy, contracted for a fourth straight month in January, raising worries about the country’s growth potential.
Major forecasters, including the Organisation of the Petroleum Exporting Countries (OPEC), see oil demand growth in 2024 driven primarily by Chinese consumption.
This looks worrying now after the country’s official purchasing managers’ index (PMI) rose to 49.2 in January from 49.0 in December, driven by a rise in output but still below the 50-mark separating growth from contraction.
This is the latest sign that the broader Chinese economy is struggling to regain momentum came days after a court ordered the liquidation of troubled property developer China Evergrande.
The real estate sector accounts for 25 per cent of China’s gross domestic product (GDP).
Prices also went lower after the US Energy Information Administration (EIA) reported an inventory build of 1.2 million barrels for the week to January 26.
This compared with a substantial draw of 9.2 million barrels for the previous week.
Earlier, the American Petroleum Institute (API) estimated another inventory draw, at 2.5 million barrels, for the week of January 26.
Meanwhile, the US Federal Reserve policy-setting committee kept the benchmark overnight interest rate in the 5.25 per cent -5.50 per cent range. It announced that rate cuts would not be appropriate until inflation in the world’s largest oil producer moves towards the central bank’s 2 per cent target.
The Chair of the bank, Mr Jerome Powell, said that US interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained job and economic growth.
The Israel-Hamas war has widened to conflict in the Red Sea between the US and Iran-aligned Houthi militants but record production in the West and slow economic growth will keep a lid on prices and limit any geopolitical risk premium, analysts say.