Oil prices steadied near a 10-day high in Asian trade on Thursday as Chinese business activity data offered mixed cues on the world's largest oil importer, although a weak dollar and signs of tighter supply still presented some upside for crude.
Crude prices were sitting on strong gains this week as a slew of softer-than-expected economic data pulled down the dollar, while the weekly U.S. inventory report showed a substantially bigger-than-expected draw ahead of the Labor Day weekend.
The prospect of more Chinese stimulus measures also somewhat aided markets, although purchasing managers’ index (PMI) data from the country still painted a mixed picture of local business activity.
Brent oil futures were flat at $85.31 a barrel, while West Texas Intermediate crude futures rose 0.1% to $81.72 a barrel by 21:48 ET (01:48 GMT). Both contracts were set to break a two-week losing streak, but were also set for a muted performance in August.
China PMIs show some improvement, rate cut speculation grows
Government data showed that China's {ecl-594||manufacturing}} sector shrank for a fifth straight month in August, albeit at a slower-than-expected pace as some facets of industrial activity- particularly the automobile sector- picked up pace.
But the non-manufacturing sector grew slightly less than expected, with weakness in the real estate sector acting as a major headwind, especially as China's biggest property developers face a potential default.
China has been a key point of contention for oil markets this year, as traders feared that worsening economic conditions in the country will dent its appetite for crude. This notion was exacerbated by July trade data showing a steep drop in Chinese oil imports, especially as fuel demand in the country remained weak.
To this end, markets are also awaiting any more stimulus measures from Beijing, with media reports suggesting that a potential cut in mortgage and deposit rates was imminent as the government moves to shore up a slowing post-COVID economic recovery.
U.S. inventories see massive weekly draw
Data from the Energy Information Administration showed on Wednesday that U.S. oil inventories shrank by about 10.6 million barrels (mb) in the week to August 25, more than thrice as much as expectations for a 3.3 mb draw.
The draw came as refiners ramped up production before the Labor Day weekend, which usually signals peak U.S. summer demand. But fuel demand is also expected to likely fall off in the remainder of the year.
Still, the large draw, which was also driven in part by strong oil exports, signaled that U.S. supplies remained tight.
Markets were also watching for any more disruptions in production stemming from Hurricane Idalia, which made landfall in Florida this week.
Weak dollar aids oil prices, more U.S. data on tap
A softer dollar also aided oil prices this week, as the greenback consolidated from a near three-month high. A string of weak U.S. economic readings, particularly softer-than-expected employment and GDP figures, spurred bets that the Federal Reserve will have limited headroom to keep raising interest rates.
Focus is now squarely on personal consumption expenditures data, as well as nonfarm payrolls, due this week.
