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Oil prices retreated on Wed as U.S. data on manufacturing to retail turned from bad to worse. Brent crude for March delivery settled down 1.1% at USD84.98. WTI crude settled down 0.9% at USD79.48.
Crude gained as much as 2% earlier on Wed - similar to Tue's rise - after the IEA said global oil demand could reach an all-time high in 2023 as China rolls back lockdowns and restrictions related to its tough COVID-zero policy.
The surge in oil prices, however, came before the Fed said U.S. industrial production fell for a second month in a row in Dec amid lower factory output that suggested manufacturers were slowing activity based on the softening demand for goods.
Separately, the New York division of the Fed reported on Tue that the NY Fed Manufacturing survey posted a -32.9 reading for Dec, versus a forecast of -8.6% and -11.20 for Nov. It was the steepest monthly slide in manufacturing since Sep 2021.
The drop in industrial production and manufacturing coincided with U.S. producer prices falling their most in nearly three years in Dec, after the sharpest tumble in a year in retail sales.
Since this week began, oil bulls, like risk investors on Wall Street, have put a positive spin on dismal U.S. data by tying them to the likelihood that the Fed will impose the smallest rate hike in eight months in Feb, if the numbers came in weaker than expected.
China also reported this week dismal numbers for full-year GDP and Dec retail sales and industrial output.
Typically, weak GDP, employment and retail sales numbers tend to weigh on oil as they are structurally-important data that support higher energy consumption when they come in on the positive side.
"At some point, the oil market has to ask what's more important for demand: The strength of the U.S. economy or the possibility of a smaller rate hike," said John Kilduff, partner at New York energy hedge fund Again Capital.
"The manufacturing numbers have been trending down for a while and PMIs have disappointed," economist Adam Button said in a post on the ForexLive forum, referring to the Purchasing Managers Index for manufacturing.
"I'm not sure what the consumer will do in 2023 but manufacturing is undoubtedly in a recession,” said Button, who conceded though that a 'recession' from elevated post-pandemic production could also be regarded as "normalization".
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