Factory activity in China declined more slowly this month, suggesting rebounding demand for energy, in oil specifically.
Per a Reuters report, the slowed decline was the result of Covid restrictions getting relaxed in several major industrial hubs. The news immediately pushed Brent crude higher.
China's purchasing managers' index rose to 49.6 this month from 47.4 in April, and beating economists' predictions for an increase to 48.6. Yet the country is not completely out of the woods with regard to Covid and its effect on the economy and oil demand.
"It shows the impact of COVID-19 outbreaks in May have not fully ended, leaving the economic outlook grim since the second quarter in 2020," Reuters quoted a Huaxing Securities analyst as saying.
"Indeed, there continues to be signs of supply chain disruptions in the survey breakdown," said Capital Economics analyst Sheana Yue. "Delivery times lengthened further while firms continued to draw down their inventories of raw materials, although at a less rapid pace than in April."
This suggests that China's oil demand outlook also leaves something to be desired, although it is improving. Higher oil prices will hardly help this demand's recovery now that Brent topped $122 per barrel following the news that the EU had agreed to phase out almost all Russian oil imports by the end of the year.
China has been the biggest beneficiary of EU action targeting Russia's oil industry as it has forced the latter to sell its crude at a discount, and much of it has been going to China.
For May, Russian seaborne oil exports to China are seen hitting 1 million bpd, up from 750,000 bpd in the first quarter and 800,000 bpd a year earlier, Reuters reported earlier this month.
Meanwhile, total oil imports have also been recovering, posting a gain for April after three months of declines. The daily average stood at 10.5 million bpd, which compared with 9.82 million bpd a year ago and 10.06 million bpd in March this year.
By Charles Kennedy for Oilprice.com
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