OIL FUTURES: Crude falls on bearish China data; Fed meeting in focus

Crude futures declined in midmorning Asian trading on Jan. 27 after China's manufacturing PMI indicated a contraction for January, raising concerns about demand from the world's largest oil importer.

At 12.43 pm Singapore time (0443 GMT), the ICE March Brent futures contract dipped 55 cents/b (0.70%) day over day at $77.95/b, while NYMEX March light sweet crude contract eased 55 cents/b (0.74%) at $74.11/b from the previous close.

China's manufacturing PMI dropped to 49.1 in January, compared to initial expectations of 50.1, breaking a three-month expansionary streak, according to data released by the National Bureau of Statistics (NBS) Jan. 27.

"The pressure [on the oil complex] is building amid bigger supply and losing the China demand anchor. [Furthermore, the fall in China's manufacturing PMI data will] definitely affect sentiments as manufacturing was driving the economic bus in China," SPI Asset Management's Managing Partner Stephen Innes.

Short-term strength, which the crude complex had previously found from sanctions imposed by the outgoing Biden administration on Russia, was offset by the incoming tariffs by US President Donald Trump.

"Trump is expected to announce a plan for tariffs on Chinese imports during the Lunar New Year holiday period. Asian currencies are expected to depreciate for the fifth consecutive year in 2025, with headlines around Trump's trade policies driving FX volatility," ANZ's Group Chief Economist and Head of Research Richard Yetsenga said.

The ICE US Dollar Index stood at 107.245 at 11:19 am Singapore time (0319 GMT) Jan. 27, inching up 0.21% from the previous close.

An appreciating US dollar will result in dollar-denominated assets such as oil becoming more expensive to consumers using foreign currencies.

Furthermore, US President Donald Trump's call for the preeminent oil cartel, OPEC, to increase oil output have also further supported the narrative of a looming supply glut in the horizon.

"All the bearish factor why I have been short. Middle East peace, prospect of Russia Ukraine peace as Trump pulls Ukraine military aid. China peak demand nearing amid green energy transformation. Trump putting pressure on OPEC and US big oil expected to ramp up production to stay in Trump's good books," SPI's Innes added.

However, Trump's influence on the cartel may be subpar as while his request for Saudi Arabia and OPEC to increase oil production may be linked to the administrations' intention to ramp up sanctions on Russia and Iran, but the bloc may not be interested heeding the call without actual supply shortages, according to experts following the issue.

"It is unclear that the Saudis would do much without risking prices dropping below their comfort zone," David Goldwyn, president of Goldwyn Global Strategies and chair of the Atlantic Council Global Energy Center's Energy Advisory Group, said.

FOMC meet in focus

Markets worldwide are turning their attention to the US Federal Reserve Open Market Committee (FOMC) meeting on late Jan. 28-29 for further cues, as derivative traders anticipate the US Federal Reserve to keep interest rates steady and put a stop on further easing.

The US economic resilience have resulted in the Federal Reserve taking a more hawkish tone in recent months, following the latest 25 basis point rate cuts implemented by the Central Bank in December, as policymakers have only projected two more 25 basis point rate cuts in 2025.

Dubai swaps

The March Dubai swap was pegged at $76.40/b at 10:00 am Singapore time (0200 GMT) Jan. 27, falling 97 cents/b (1.25%) from the previous Jan. 24 Asian market close.

The February-March Dubai swap intermonth spread was pegged at $2.46/b, up 8 cents/b, while the March-April Dubai swap intermonth spread was pegged at $1.01/b, lower 1 cent/b, over the same period.

The March Brent-Dubai exchange of futures for swaps was pegged at $1.19/b, increasing 28 cents/b from the previous Asian close.