DTN Oil

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled the first trading day of May lower, with the international benchmark sliding below $80 barrel (bbl) after weak manufacturing data in China fueled concerns over a lopsided demand recovery in the world's largest oil importer, while a stronger U.S. dollar further weighed on the oil complex.

A rally in the U.S. Dollar Index Monday to a one-and-one-half-week high of 101.92 follows the release of U.S. manufacturing data for the month of April showing a slight uptick in new orders and rebounding employment. That being said, the headline manufacturing index still came in below the 50-point mark separating expansion from contraction, reflecting continued weakness in activity amid higher borrowing costs and tight credit. The figure indicates the fifth consecutive month of contraction for the domestic manufacturing sector, with panelist's comments registering a one-to-one ratio regarding optimism for future growth and continuing near-term demand declines.

"Pricing pressures continue to plague daily operations. After consecutive years of inflation and aggressive pricing to our retailers, we are starting to see resistance in the willingness to pass along pricing to end consumers. Discounting has entered into conversations." said a panelist from the food, beverage and tobacco industry.

Earlier in the session, crude came under selling pressure after China's manufacturing activity unexpectedly contracted in April while expansion in the services sector also slowed. This underlines the tough challenge faced by Beijing amid an uneven and narrow post-pandemic recovery. The official manufacturing purchasing managers' index fell below the 50-mark, which separates expansion from contraction, to 49.2 in April -- the lowest level since China's post-pandemic reopening late last year. Sub-indexes for new orders, new export orders and manufacturing employment were all below 50.

The decline in factory activity was mainly due to "insufficient market demand and the high base effect of a rapid recovery in manufacturing in the first quarter," according to Zhao Qinghe, a senior economist with China's National Bureau of Statistics.

However, even a non-manufacturing index of activity in the services and construction also softened to 56.4 from 58.2 in March but still showed an expansion in these sectors of the economy.

In its first official economic assessment since new leadership took over, Beijing said economic growth had got off to a good start, but also noted there are risks threatening the sustainability of the recovery.

"The current economic improvement is mainly owing to recovery-driven growth, but the internal driving force is not strong, and demand is still insufficient," said a statement on Friday wrapping up a meeting of the Politburo, the ruling Communist Party's top decision-making body. The uneven growth in China doesn't bode well for a bullish view on global oil demand this year that has been supported by expectations for China's post-COVID rebound. The International Energy Agency forecasted global oil consumption will climb by 2 million barrels per day (bpd) in 2023 to a record 101.9 million bpd, buoyed by a resurgent China which will account for 90% of that growth. Despite these forecasts, diesel and gasoline markets in Asia have weakened significantly over the past month. Some refiners in the region are cutting run rates as margins sink and China's exports of refined products surge amid weak domestic demand.

At settlement, NYMEX June West Texas Intermediate futures fell $1.12 to $75.66 barrel (bbl), while the international crude benchmark ICE Brent futures for July delivery dropped back $1.02 bbl to $79.31 bbl. In the opposite direction from the crude complex, NYMEX June RBOB futures advanced $0.0445 to $2.5504 gallon, and June ULSD futures edged higher to $2.3823 gallon.