The latest blow to the oil and gas markets: Chinese manufacturing sector shrinks again! – By Hemantha Yapa Abeywardena
Source: oilfutures
In the ascending order of anxiety, the OPEC+ has been forced to accumulate a growing range of bad news in recent times for its decision makers to digest. In this context, the latest manufacturing data from China hardly comes as a catalyst for optimism, as far as the oil cartel is concerned.
China’s manufacturing PMI, the key indicator that reflects its production activity, has fallen yet again in May, indicating a significant contraction: it has come down to 49.5 in May, from 50.4 in April; the threshold is 50% and anything below it, is a contraction in the manufacturing sector.
The disappointing news from the world’s second largest economy comes in the wake of the OPEC+ holding its meeting, scheduled to be held on June 1 in person, online – all of a sudden with no convincing explanation.
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Prior to that, there were reports that Kazakhstan, a member of the OPEC+ from the Central Asia, wanted to have a bigger quota for its production: in 2023, it produced 1.8 millions barrels per day and at present holds the18th position in the world, when it comes to oil production.
The less-than transparent trail left behind by Angola, while leaving the OPEC+ last year, is an inverse testament to the risks that the cartel face with, if key members get heavy-handed over the production cuts.
The crisis in the manufacturing sector in China has been exacerbated by the crisis in its property markets and growing chasm between the Asian giant and the West; at present, neither shows any sign of abating. The issue over Taiwan, meanwhile, has the potential to push the mistrust – or mutual loathing – beyond the hazy redline drawn in the ever shifting diplomatic sand.
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Although the OPEC+ hoped that China’s purchasing power, when it came to the commodity in question, would grow steeply in the aftermath of the Covid-19 pandemic, it appeared to be illusive with fluctuating mixed signals: having been in the contraction territory for months, the PMI bounced back above the threshold, 50%, in March this year to 50.8, only to come down in April to 50.4. As mentioned above, it fell below 50% in May to 49.5, defying every single optimistic forecast that used to say otherwise.
The IMF, meanwhile, also paints a less-than-clear picture about the Chinese economy; it says the Chinese GDP will go up by 5% and 4.6% in 2024 and 2025 respectively, revising up its own forecast for 2024.
Analysts blame the Chinese manufacturing contraction on range of factors, both at economic and political levels. They also note that the inflation that has become a global concern due to high energy costs – for something that the OPEC+ is also responsible – is also a cause for the issue; export deliveries have come down in proportion to international orders that were on decline.
The oil producers, meanwhile, have been dealt yet another blow by the growing US crude stocks. It has been rising steadily since March, implying an consumption-apathy among the motorists in the world’s top economy, the US.
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