Equilibrium Remains Elusive: Oil Trades Under $50 as Inventories Rise

Talking Points:

• China’s flash manufacturing PMI expands in February rising to 50.1 from 49.7
• U.S. crude inventories and production increased by 8.4 and 9.7 million b/day last week
• U.S. Oil is trading back under $50

Data indicates that supply and demand have yet to match each other in strength, yet oil prices have largely stabilized throughout the month of February. A clear indication of the next direction remains elusive as supply and demand have yet to equilibrate; demand has increased, yet so too has supply.

In offering a certain degree of support for oil prices, China’s flash manufacturing PMI returned to an expansive state in February. In rising to 50.1 from 49.7, both new orders and output were found to be increasing at a faster rate, while stocks of purchases and finished goods transitioned from a decrease to an increase. The improvement however, is to be taken with caution as sluggish economic growth is still believed to warrant additional policy easing, according to HSBC Economists. Final figures will be released on March 2nd.

Perhaps more than counterbalancing the increase in demand was a greater increase in the supply of U.S. oil. In a report published Tuesday, by the American Petroleum Institutes, crude stocks were cited to have increased by 8.9 million barrels in the week ending February 20th. A similar notion was shared in the U.S. Energy Information Association’s Weekly Petroleum Status Report published today. U.S. crude inventories and production increased last week by 8.4 million and 9.7 million barrels per day respectively. The previous levels, for the week ending February 13th, were 7.7 and 9.2 million b/day.

U.S. Oil Daily Chart

Chart Created by Walker England Using MarketScope2.0