Oil Holds Below $54 as China Factory Data Reignites Growth Worry

(Bloomberg) -- Oil held below $54 a barrel after its best January on record as a weak Chinese manufacturing reading and the lack of a major breakthrough in the trade talks reignited concerns a growth slowdown will hurt demand.

Futures in New York were steady after rising 18 percent last month. China promised to “substantially” expand purchases of U.S. soybeans after two days of discussions in Washington, while the White House said progress had been made but didn’t list any new commitments by either side. A Chinese factory purchasing managers index for January fell to the lowest level in almost three years, showing the damage the trade war is doing to Asia’s largest economy.

A 40 percent plunge in crude last quarter and record American shale flows prompted the OPEC+ coalition to embark on a fresh round of output cuts that’s been supporting prices this year. Gains have been capped by continued uncertainty over whether the U.S. and China can tamp down their trade war. Crude dipped Thursday as government figures showed U.S. production swelled to a record high in November.

“China’s data has added to concerns of slower growth and demand that have been lingering in the minds of investors as the trade talks in Washington concluded with nothing firm,” said Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. in Seoul. “That’s overshadowing optimism about tighter supplies.”

West Texas Intermediate crude for March delivery rose 1 cent to $53.80 a barrel on the New York Mercantile Exchange at 7:30 a.m. in London. It dropped 44 cents to $53.79 on Thursday and is up 12 cents, or 0.2 percent, this week.

Brent for April settlement added 12 cents to $60.96 a barrel on the London-based ICE Futures Europe exchange. The March contract, which expired Thursday, rose 24 cents to $61.89. The global crude benchmark was at a $6.90 premium to WTI.

The Chinese manufacturing PMI fell more than expected to 48.3 last month, the latest evidence of a slump in factory sentiment across Asia. While the Federal Reserve provided a reprieve to global markets this week by signaling a pause in interest-rate hikes, it failed to assuage investor worries about the disruption to business orders and investment plans as the trade war drags on.  

“Global PMIs are in absolute shambles, the Fed-put is the only lifeline now,” said Howie Lee, a Singapore-based economist at Oversea-Chinese Banking Corp.

The U.S. and China are planning further discussions before a March 1 deadline when new tariffs kick in. “Much work remains to be done,” the White House said in a statement in which it reiterated its threat to raise levies on Chinese goods.

©2019 Bloomberg L.P.