The China demand surge: Could Oil prices break out of their range?

After months of sluggish trading, oil markets may have finally found their bullish catalyst-China’s economic revival. Fresh data from Beijing suggests that the world’s second-largest economy is regaining momentum, igniting optimism among energy traders who have been searching for signs of demand strength.

Could China’s comeback push crude prices out of their recent range and into higher territory? The signs are promising.

China’s manufacturing vitality

At the heart of this newfound optimism is China’s manufacturing sector, which expanded at the fastest pace in three months. February’s Purchasing Managers’ Index (PMI) climbed to 50.2, signalling growth after a contraction in January. This reading not only beat analyst expectations but also suggests that China’s industrial machine is regaining its footing.

Source: Investing.com

For oil markets, this is a game-changing development. Manufacturing is a major driver of energy consumption, powering factories, transportation networks, and global supply chains. As Chinese factories ramp up production, demand for diesel, gasoline, and petrochemicals rises alongside it.

Manufacturing isn’t the only bright spot. China’s domestic travel industry is booming, with flights, rail transport, and road traffic rebounding to pre-pandemic levels. This surge in mobility is lifting demand for jet fuel and gasoline, key components in overall oil consumption.

Analysts point out that China’s growing middle class is fueling an energy-intensive lifestyle, with rising car ownership and an increasing appetite for international travel. The country’s economic recovery isn’t just about factories-it’s also about millions of people moving, working, and spending more energy in the process.

OPEC+ watching China closely

For OPEC+ and major oil producers, China’s demand trends are the single most important factor in shaping global prices. The cartel has worked aggressively to limit supply and prop up oil prices, but demand concerns-especially from China’s economic slowdown in 2023-have kept prices in check.

Now, with China showing signs of stronger-than-expected consumption, OPEC+ may reconsider its production strategy. If demand keeps improving, the market could finally absorb excess supply, setting the stage for a potential price breakout.

While China’s economic rebound is a bullish signal, the oil market remains complex. Concerns over global economic growth, central bank policies, and geopolitical tensions all play a role in shaping crude prices.

However, the psychological shift in market sentiment cannot be ignored. Just a few weeks ago, the narrative was centered around weak demand, oversupply, and sluggish price action. Now, China’s manufacturing and mobility recovery are reshaping the outlook, giving oil bulls something to rally behind.

If China’s demand surge continues, it could be the catalyst that pushes crude oil beyond its current price range. A stronger-than-expected rebound in industrial activity and transportation demand could tighten the market faster than expected, shifting the balance toward higher prices.

Technical outlook: Will prices remain rangebound?

Oil has been locked in a tight price range of between $70.58 and $72.88, for the past few weeks. The daily chart paints a picture of price consolidation, though a bearish bias is evident as prices remain below the moving average. RSI pointing downwards at around 40 also builds the bearish narrative. Key level to watch should prices see a slide is $69.005 and on the upside the key levels to watch are $70.131 and $72,649. 

Source: Deriv MT5

Disclaimer:

The information contained within this blog article is for educational purposes only and is not intended as financial or investment advice.

No representation or warranty is given as to the accuracy or completeness of this information. We recommend you do your own research before making any trading decisions.

This information is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.

The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.