Chinese manufacturing strength supports oil demand

China's manufacturing sector continued to strengthen in June, helping boost oil demand.

The Caixin manufacturing purchasing managers' index (PMI) for China increased to 51.2 in June from 50.7 in May, in what was the second successive monthly increase. A reading above 50 indicates an expansion in the sector. Demand also picked up, with the sub-index for total new orders expanding for the first time since January.

Sub-indexes for stocks of purchased items and the quantity of purchases both hit the highest levels since the first quarter of 2018, reflecting manufacturers' growing willingness to expand production. But new export orders continued to fall, indicating continued weakness in overseas markets because of the Covid-19 pandemic.

An economic rebound after the lifting of coronavirus restrictions helped send China's crude imports to a record high of 11.29mn b/d in May, according to the latest customs data. Imports are likely to stay strong in June and July as refiners raise runs and take advantage of strong margins for diesel in particular. But deliveries may fall back in August amid high stocks. Heavy rains in south China, and the psychological impact of a fresh Covid-19 outbreak in Beijing, are also starting to erode fuel demand.

The official PMI published by China's national statistics bureau (NBS) on 30 June also strengthened, rising by 0.3 percentage points from May to 50.9 last month. This is still below the recent high of 52pc in March.

NBS' production and new orders indexes also rose, with indicators for medicine, metals, equipment and machinery sectors significantly higher than May. The indexes for primary raw material purchase prices and producer prices were at 56.8pc and 52.4pc respectively last month, up 5.2 and 3.7pc from May. Both were the highest since January.