Oil slips after disappointing Chinese PMI data

London — Oil prices fell by more than $1 on Monday after weaker-than-expected factory activity data out of China and on the concern that the country’s widening Covid-19 curbs will curtail demand.

Brent crude futures dropped $1.17, or 1.2%, to $94.60 a barrel by 9am GMT, extending Friday’s 1.2% decline.

US West Texas Intermediate (WTI) crude was down $1.25, or 1.4%, at $86.65 after losing 1.3% on Friday.

Both benchmarks, however, are on track for their first monthly gains since May.

Factory activity in China, the world’s largest crude importer, fell unexpectedly in October, an official survey showed on Monday, weighed down by softening global demand and strict Covid-19 restrictions that hit production.

“The purchasing managers index (PMI) data contracting adds to the post-China congress party blues for oil markets. It is not difficult to draw a straight line from weaker PMIs to China’s Covid-zero policy,” said Stephen Innes, managing partner of SPI Asset Management.

“So long as Covid-zero remains entrenched, it will continue to thwart oil bulls.”

Chinese cities are stepping up zero-Covid curbs as outbreaks widen, dampening the hope of a rebound in demand.

Strict Covid-19 curbs in China have hit economic and business activity, curtailing oil demand. China’s crude oil imports for the first three quarters of the year fell 4.3% year on year for the first annual decline for the period since at least 2014.

Meanwhile, the eurozone is likely to be entering recession, with its October business activity contracting at the fastest in nearly two years, an S&P Global survey said, as rising costs of living keeps consumers cautious and hurts demand.

European Central Bank (ECB) policymakers are also standing behind plans to keep raising interest rates, even if it pushes the bloc into recession and stirs political resentment.

In an outlook to be released on Monday, oil cartel Opec is expected to stick to a view of oil demand rising for another decade despite increasing use of renewable energy and electric cars, two Opec sources said. 

Reuters