Some positive news came yesterday as China’s PMI readings beat market expectations, bouncing into expansionary territory driven by a sharp rebound in production, employment and orders. The official manufacturing gauge for March jumped to 52 in February, from the record low 35.7 level in February; following the unprecedented shutdown. The much better than expected readings give hope to other countries that once the virus is contained, sentiment is improved and economic activity can resume. We do however, remain cautious as this is only one economic (sentiment) reading, and China is still expected to suffer a fall in Q1’20 growth, and many sectors are far from full capacity. Moreover, demand constraints continue to weigh as the West continues to battle the wave of infections.
As China’s oil refineries reopen, processing is expected to spike to over 12 million bpd just this week, to deal with manufacturing demand; the highest level since before the Covid-19 outbreak. This news alongside the stronger PMI readings has lent some support to Brent today. Interestingly, China announced it has extracted a record volume of fire ice, 861,400 cubic meters. This is not considered a huge amount, however, experts believe the South China Sea holds vast deposits of methane hydrate (“fire ice”), and China believes this could be a huge source of alternative energy for the world’s largest gas and oil importer. This could be interesting to monitor as scientists believe there is at least 10 times the amount of gas in “fire ice” as there is in shale.