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10 Mar 2023

WTI exposes to $75.00 as China struggles to show reopening-inspired recovery

  • Oil price is expected to continue its downside journey to $75.00 amid a weak global economic outlook.
  • A failure of the Chinese administration in spurting domestic demand despite reopening measures has dampened optimism.
  • A better-than-projected US NFP might propel the risk of aggressive rate hikes by the Fed.

West Texas Intermediate (WTI), futures on NYMEX, have slipped below $75.50 in the Asian session. The oil price has resumed its downside journey as the optimism among market participants regarding China’s economic recovery after the rollback of lockdown curbs is fading dramatically.

On Thursday, the release of the weak China’s Consumer Price Index (CPI) and Producer Price Index (PPI) figures cleared that the administration is failing to spurt the domestic demand as promised while dismantling the pandemic controls.

The monthly CPI figure was contracted by 0.5% while the street was anticipating a decline to 0.2% from the former release of 0.8%. The price of goods and services in China has accelerated by 1% annually, lower than the consensus of 1.9% and the prior release of 2.1%.

Apart from that, the annual Producer Price Index (PPI) contracted by 1.4% vs. the consensus of 1.3% contraction and 0.8% contraction in the prior release. This indicates that producers have lowered the prices of goods and services at factory gates to offset weak demand. An absence of recovery in domestic demand indicates a loss of consumers’ confidence in the Chinese administration.

After sensing a weak economic outlook from the world’s second-largest economy, economic prospects from the world’s giant United States also look discouraging. A bigger rate hike from the Federal Reserve (Fed) is widely anticipated as US inflation is expected to flex its muscles amid an upbeat labor market. Going forward, the release of the US Nonfarm Payrolls (NFP) data will provide more clarity.

In spite of signs of a weak global economic outlook, the oil price has not shown a sheer sell-off as the US Dollar Index (DXY) has dropped gradually to 105.25. Investors could pump significant funds into the USD index if the US NFP releases better than the consensus.

 

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