DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures ended mixed Tuesday, with the nearby-month West Texas Intermediate contract sharply paring an advance to a nine-week high $81.23 per barrel (bbl) after a survey on manufacturing activity in New York State showed business activity collapsed to the lowest level since June 2020, underscoring the depth of demand destruction as the Federal Reserve hikes interest rates into restrictive territory.

A key measure for manufacturing activity in the Empire State plummeted 22 points early January to a negative 32.9 reading, showed the survey released Tuesday morning by the Federal Reserve Bank of New York. The figure represents the fifth-worst reading in the survey's history and was twice as weak as even the most pessimistic estimates.

"New orders and shipments declined substantially. Employment growth stalled, and the average workweek shortened. Looking ahead, firms expect little improvement in business conditions over the next six months," according to comments by the Fed bank.

Taking a broader look, business activity across the U.S. manufacturing sector fell in December for the second straight month, with five out of six biggest manufacturing industries registering a contraction. By all accounts, domestic manufacturing is already in recession even as the broader economy still hangs on a resilient consumer.

The data doesn't bode well for distillate fuel consumption. Distillate product supplied to the U.S. market -- a measure of demand -- averaged 3.6 million barrels per day (bpd) over the past four weeks, down 5.5% from the same period last year. Traders expect little improvement in the coming weeks.

Globally, the picture doesn't look as bleak. China is well into the reopening phase of its economy following the abrupt end of Beijing's zero-COVID policies despite surging cases and deaths. Addressing the wave of COVID infections that has strained hospitals in China, Vice Premier Liu He at the World Economic Forum in Davos, Switzerland, said the peak of infections had passed, and consumption-related industries have returned to normal.

"We are confident China's growth will most likely return to its normal trend," Liu said, adding that life in China had been "restored to normal" following the lifting of pandemic restrictions. Beijing's focus this year will be on boosting domestic demand, which will lead to a notable increase in imports, Liu said.

High-frequency data for early January suggests mobility in China is indeed recovering from a December low, with the number of domestic flights, subway and train usage is trending higher. Goldman Sachs said in a weekend research note that China is sharply increasing crude imports while reducing refined fuel exports, which it says implies "China is preparing for a significant up-lift in demand, meaning the impact on global oil prices will likely be felt much earlier than realized improvements in end-demand."

Last week, Beijing issued a fresh batch of import quotas for independent refiners totaling 132 million tons of crude oil for 2023 compared to 109 million tons last year. China sets a quota system under which independent refiners are given a certain volume to import oil in several allowances each year. It must be noted, however, that China still has the largest spare refining capacity globally and until China imports more oil than it exports products, it would be challenging to assess how impactful China's reopening is for the global oil market. Although estimates vary, a survey from China-focused consultants published last week by Bloomberg showed daily oil demand in China could increase by 800,000 bpd this year, taking daily oil consumption to an all-time high of about 16 million bpd. In 2022, China's oil demand averaged slightly above 15 million bpd, according to estimates from the U.S. Energy Information Administration.

At settlement, WTI for February delivery added $0.32 to $80.18 per bbl, and Brent March futures on ICE advanced $1.46 to $85.92 per bbl. NYMEX RBOB February contract gained $0.0123 to $2.5451 per gallon, and front-month ULSD futures declined $0.0049 to $3.2510 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com