Crude Oil Declines; Initial Claims Increase, China’s PMI Impact

By Peter Nurse

Oil prices fell on Thursday following an unexpected rise in U.S. unemployment, which has raised concerns about a slowing economic recovery. This comes amid indications that China’s economy is being affected by a power crunch.

As of 9:25 AM ET (1325 GMT), futures were down 1.7% at $73.58 a barrel, while another set of futures decreased by 1.5% to $76.96 a barrel. U.S. gasoline RBOB futures also dipped 1.3%, trading at $2.1460 a gallon.

Applications for state unemployment benefits in the U.S. unexpectedly increased for the third consecutive week, climbing to 362,000 last week. This suggests that the resurgence of COVID-19 infections, particularly due to the delta variant, may be impacting the labor market.

Another report confirmed that the U.S. economy expanded at a 6.7% annualized rate in the second quarter, slightly higher than the initial estimate of 6.6%.

On the international front, data released Thursday revealed that China’s factory activity unexpectedly contracted in September, with the Manufacturing Purchasing Managers’ Index coming in at 49.6, down from 50.1 in August. This marks the first time since February 2020 that the index has fallen below the critical threshold of 50, which indicates expansion.

China is the largest importer of crude oil and the second-largest consumer, following the United States.

Additionally, official figures indicated an unanticipated increase in U.S. crude inventories as production in the Gulf of Mexico largely returned to pre-Hurricane Ida levels from around a month ago. U.S. crude inventories rose by 4.6 million barrels last week, defying expectations for a decrease of 1.7 million barrels.

Despite these setbacks, crude oil is still on track for a substantial monthly gain, fueled by expectations that the market will remain in a supply deficit for some time. Global oil supply is projected to be 1.2 million barrels per day below demand in October, and 900,000 barrels per day below in November, according to an OPEC secretariat document currently under review by the Joint Technical Committee.

This anticipated supply situation will likely be a major topic of discussion in the upcoming meeting of the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+.

Analysts at ING noted, “The group has been cautious up until this point. However, it remains to be seen whether they will maintain this approach if the calls to accelerate output growth grow more urgent.”